Softpanorama

Home Switchboard Unix Administration Red Hat TCP/IP Networks Neoliberalism Toxic Managers
May the source be with you, but remember the KISS principle ;-)
Skepticism and critical thinking is not panacea, but can help to understand the world better

The Secular Stagnation as an Immanent Feature of Post-2008 Neoliberalism

Image courtesy of Koren Shadmi (What’s Behind a Rise in Ethnic Nationalism? Maybe the Economy - The New York Times, Oct 14, 2016)
News Neoliberalism as a New Form of Corporatism Recommended Links GDP as a false measure of a country economic output Ethno-linguistic and "Cultural" Nationalism as antidote to Neoliberalism Chronic Unemployment Redistribution of wealth up as the essence of neoliberalism
Forthcoming slow motion collapse of global neoliberal empire led by the USA Anti-globalization movement Why Peak Oil Threatens the International Monetary System Brexit as the start of the reversal of neoliberal globalization Immigration, wage depression and free movement of workers Economics of Peak Energy Upward Redistribution of Wealth
Identity politics as diversion of attention from social inequality Neoliberalism war on labor The Great Transformation Eroding Western living standards Immigration, wage depression and free movement of workers Greece debt enslavement Ukraine debt enslavement
Neoliberal rationality Neoliberal "New Class" as variant of Soviet Nomenklatura The fiasco of suburbia Quite coup Casino Capitalism Lawrence Summers Oil glut fallacy
Rational Fools vs. Efficient Crooks: The efficient markets hypothesis Austerity Financial Sector Induced Systemic Instability of Economy Energy Geopolitics Corruption of Regulators MSM propagated myth about Saudis defending market share Great condensate con
Russia oil production Helicopter Ben: Arsonist Turned into Firefighter Financial Quotes Casino Capitalism Dictionary Financial Humor Humor Etc

Introduction

Secular stagnation is a term proposed by Keynesian economist Alvin Hansen back in the 1930s to explain the USA dismal economic performance during this period. The period in which sluggish growth and output, and employment levels well below potential, coincide with a problematically low (even negative) real interest rates even in the face of the extraordinarily easy monetary policy. Later a similar phenomenon occurred in Japan. that's why it is often called called Japanification of the economy.  Secular stagnation returned to the USA in full force after the financial crisis of 2008 (so called The Long Recession), so this is the second time the USA society experience the same socio-economic phenomenon. 

Formally it can be defined as any stagnation that lasts substantially longer then the business cycle (and dominates the business cycle induced variations of economic activities), the suppression of economic performance for a long (aka secular) period. It also can be viewed as the crisis of demand, when demand became systemically weak (which under neoliberalism is ensured by redistribution of wealth up).

The global stagnation we are experiencing is the logical result of the dominance of neoliberalism and a sign of its crisis an a ideology. It is somewhat similar to the crisis of Bolshevik's ideology in the USSR in 60th when everybody realized that the existing society cannot fulfill the key promise of higher living standards. And that over centralization of economic life naturally leads to stagnation.  The analogy does not ends here, but this point is the most important.

Neoliberalism replaced over-centralization (with iron fist one party rule) with over-financialization (with iron fist rule of financial oligarchy), with generally the same result as for the economy ( In other words neoliberalism like bolshevism is equal to economic stagnation; extremes meet).  The end of cheap oil did not help iether. In a sense neoliberalism might be viewed as the elite reaction to the end of cheap oil, when it became clear that there are not enough cookies for everyone.

This growth in the financial sector's profits has not been an accident; it is the result of  engineered shift in the elite thinking, which changed government policies. The central question of politics is, in my view, "Who has a right to live and who does not".  In the answer to this question, neoliberal subscribes to Social Darwinism: ordinary citizens should be given much less rather than more social protection. Such  policies would have been impossible in 50th and 60th (A Short History of Neo-liberalism)

In 1945 or 1950, if you had seriously proposed any of the ideas and policies in today's standard neo-liberal toolkit, you would have been laughed off the stage at or sent off to the insane asylum. At least in the Western countries, at that time, everyone was a Keynesian, a social democrat or a social-Christian democrat or some shade of Marxist.

The idea that the market should be allowed to make major social and political decisions; the idea that the State should voluntarily reduce its role in the economy, or that corporations should be given total freedom, that trade unions should be curbed and citizens given much less rather than more social protection--such ideas were utterly foreign to the spirit of the time. Even if someone actually agreed with these ideas, he or she would have hesitated to take such a position in public and would have had a hard time finding an audience.

And this change in government polices was achieved in classic Bolsheviks coup d'état way, when yoiu first create the Party of "professional neoliberal revolutionaries". Who then push for this change and "occupy" strategic places like economics departments at the universities, privately funded think tanks, MSM, and then subvert one or both major parties.  The crisis of "New Deal Capitalism" helped, but without network of think tanks and rich donors, the triumph of neoliberalism in the USA would have been impossible:

...one explanation for this triumph of neo-liberalism and the economic, political, social and ecological disasters that go with it is that neo-liberals have bought and paid for their own vicious and regressive "Great Transformation". They have understood, as progressives have not, that ideas have consequences. Starting from a tiny embryo at the University of Chicago with the philosopher-economist Friedrich von Hayek and his students like Milton Friedman at its nucleus, the neo-liberals and their funders have created a huge international network of foundations, institutes, research centers, publications, scholars, writers and public relations hacks to develop, package and push their ideas and doctrine relentlessly.

Most economists are acutely aware of the increasing role in economic life of financial markets, institutions and operations and the pursuit of prifits via excotic instruments such as derivatives (all this constituted  financialization). This dominant feature of neoliberalism has huge the re-distributional implications, huge effects on the US economy, international dimensions and monetary system, depth and longevity of financial crises and unapt policy responses to them.

They have built this highly efficient ideological cadre because they understand what the Italian Marxist thinker Antonio Gramsci was talking about when he developed the concept of cultural hegemony. If you can occupy peoples' heads, their hearts and their hands will follow.

I do not have time to give you details here, but believe me, the ideological and promotional work of the right has been absolutely brilliant. They have spent hundreds of millions of dollars, but the result has been worth every penny to them because they have made neo-liberalism seem as if it were the natural and normal condition of humankind. No matter how many disasters of all kinds the neo-liberal system has visibly created, no matter what financial crises it may engender, no matter how many losers and outcasts it may create, it is still made to seem inevitable, like an act of God, the only possible economic and social order available to us.  

Neoliberalism naturally leads to secular stagnation due to redistribution of wealth up. which undermines purchasing power of the 99%, or more correctly 99.9 of the population. In the USA this topic became hotly debated theme in establishment circles after Summers speech in 2013.  Unfortunately it was suppressed in Presidential campaign of 2016. Please note that Sanders speaks about Wall Street shenanigans, but not about ideology of neoliberalism.  No candidates tried to address this problem of "self-colonization" of the USA, which is probably crucial to "making America great again" instead of continued slide into what is called "banana republic" coined by American writer O. Henry (William Sydney Porter 1862–1910). Here is how Wikipedia described the term:

Banana republic or banana state is a pejorative political science term for politically unstable countries in Latin America whose economies are largely dependent on exporting a limited-resource product, e.g. bananas. It typically has stratified social classes, including a large, impoverished working class and a ruling plutocracy of business, political, and military elites.[1] This politico-economic oligarchy controls the primary-sector productions to exploit the country's economy.[2]

... ... ...

In economics, a banana republic is a country operated as a commercial enterprise for private profit, effected by a collusion between the State and favoured monopolies, in which the profit derived from the private exploitation of public lands is private property, while the debts incurred thereby are a public responsibility.

This topic is of great importance to the US elite because the USA is the citadel of  neoliberalism. It also suggest that the natural way neoliberal economic system based on increasing of the level of inequality (redistribution of wealth up) should behave: after the initial economic boom (like in case of steroids use) caused by  financialization of economy (as well as dissolution of the USSR), helped by off-shoring of manufacturing, the destructive effects of this temporary boost come into foreground. Redistribution of wealth up increases inequality which after a certain delay starts to undercuts domestic demand. It also tilts the demand more toward conspicuous consumption (note the boom of luxury cars sales in the USA).  

But after  inequality reaches certain critical threshold  the economy faces extended period of low growth reflecting persistently weak private demand (purchasing power of lower 90% of population).  People who mostly have low level service economy jobs (aka MC-jobs) can't buy that much.  Earlier giants of American capitalism like Ford understood that, but Wall Street sharks do not and does not want.  They operate under principle "Après nous le déluge" ("After us, the deluge").

An economic cycle enters recession when total spending falls below expected by producers and they realize that production level is too high relative to demand. What we have under neoliberalism is Marx's crisis of overproduction on a new level. At this level it is intrinsically connected with the parasitic nature of complete financialization of the economy. The focus on monetary policy and the failure to enact fiscal policy options is the key structural defect of neoliberalism ideology and can't be changed unless neoliberal ideology is abandoned. Which probably will not happen unless another huge crisis hits the USA. That might not happen soon.  Bolshevism lasted more then 70 years. If we assume that the "age of neoliberalism" started at 1973 with Pinochet coup d'état in Chile, neoliberalism as a social system is just 43 years old (as of 2016). It still has some "time to live"(TTL) in zombies state due to the principle first formulated by Margaret Thatcher as TINA ("There Is No Alternative") -- the main competitor, bolshevism, was discredited by the collapse of the USSR and China leadership adoption of neoliberalism. While Soviet leadership simply abandoned the sinking ship and became Nouveau riche in a neoliberal society that followed, Chinese elite managed to preserved at least outer framework of the Marxist state and the political control of the Communist party (not clear for how long). But there was a neoliberal transformation of Chinese economy, initiated, paradoxically, by the Chinese Communist Party.

Currently, no other ideology, including old "New Deal" ideology can  compete with neoliberal ideology, although things started to change with Sanders campaign in the USA on  the left and Trump campaign on the right. Most of what we see as a negative reaction to neoliberalism in Europe generally falls into the domain of cultural nationalism.    

The 2008 financial crisis, while discrediting neoliberalism as an ideology (in the same way as WWII discredited Bolshevism), was clearly not enough for the abandonment of this ideology. Actually neoliberalism proved to be remarkably resilient after this crisis. Some researchers claim that it entered "zombie state" and became more bloodthirsty and ruthless.

There is also religious overtones of neoliberalism which increase its longevity (similar to Trotskyism, and neoliberalism can be called "Trotskyism for rich"). So, from a small, unpopular sect with virtually no influence, neo-liberalism has become the major world religion with its dogmatic doctrine, its priesthood, its law-giving institutions and perhaps most important of all, its hell for heathen and sinners who dare to contest the revealed truth.  Like in most cults adherents became more fanatical believers after the prophecy did not materialized. The USA elite tried partially alleviate this problem by resorting to military Keynesianism as a supplementary strategy. But while military budget was raised to unprecedented levels, it can't reverse the tendency. Persistent high output gap is now a feature of the US economy, not a transitory state.

But there is another factor in play here: combination of peak (aka "plato" ;-) oil and established correlation of  the speed of economic growth and prices on fossil fuels and first of all on oil. Oil provides more than a third of the energy we use on the planet every day, more than any other energy source (How High Oil Prices Will Permanently Cap Economic Growth - Bloomberg). It is dominant fuel for transport and in this role it is very difficult to replace. 

That means that a substantial increase of price of oil acts as a fundamental limiting factor for economic growth. And "end of cheap oil" simply means that any increase of supply of oil to support growing population on the planet and economic growth now requires higher prices. Which naturally undermine economic growth, unless massive injection of currency are instituted. that probably was the factor that prevented slide of the US economy into the recession in 2009-2012.  Such a Catch-22.

Growth dampening potential of over $100-a-barrel oil is now a well established factor. Unfortunately, the reverse is not true. Drop of oil price to below $50 as happened in late 2014 and first half of 2015 did not increase growth rate of the USA economy. It might simply prevented it from sliding it into another phase of Great Recession. Moreover when  economies activity drops, less oil is needed.  Enter permanent stagnation.

Also there is not much oil left that can be profitably extracted at prices below $80. So the current oil price slump is a temporary phenomenon, whether it was engineered, or is a mixture of factors including temporary overcapacity . Sooner or later oil prices should return to level "above $80", as only at this level of oil price capital expenditures in new production make sense. That des not mean that oil prices can't be suppressed for another year or even two, but as Herbert Stein aptly noted   "If something cannot go on forever, it will stop,"

 The alien spaceship landing

Imagine the alien spaceship landed somewhere in the world. There would be denial, disbelief, fear, and great uncertainty for the future. World leaders would struggle to make sense of the events. The landing would change everything.

The secular stagnation (aka "end of permanent growth") is a very similar event.  This also is the event that has potential to change everything, but it is much more prolonged in time and due to this less visible ("boiling frog effect").  Also this is not a single event, but a long sequence of related events that probably might last several decades (as Japan had shown) or even centuries. The current "Great Recession" might be just a prolog to those events. It is clearly incompatible with capitalism as a mode of production, although capitalism as a social system demonstrated over the years tremendous adaptability and it is too early to write it down completely.  Also no clear alternatives exists. 

A very slow recovery and the secular stagnation is characteristic of economies suffering from a balance-sheet recession (aka crisis of overproduction), as forcefully argued by Nomura’s Richard Koo and other economists. The key point is that private investment is down, not because of “policy uncertainty” or “increased regulation”, but because business-sector expectations about future profitability have become dramatically depressed — and rationally so — in a context characterized by heavy indebtedness (of both households and corporations). As businesses see the demand falls they scale down production which creates negative feedback look and depresses demand further. 

The key point is that private investment is down, not because of “policy uncertainty” or “increased regulation”, but because business-sector expectations about future profitability have become dramatically depressed — and rationally so — in a context characterized by heavy indebtedness (of both households and corporations). As businesses see the demand falls they scale down production which creates negative feedback look and depresses demand further.   

Five  hypothesis about the roots of secular stagnation

There are at least five different hypothesis about the roots of secular stagnation:

Summers’s remarks and articles were followed by an explosion of debate concerning “secular stagnation”—a term commonly associated with Alvin Hansen’s work from the 1930s to ’50s, and frequently employed in Monthly Review to explain developments in the advanced economies from the 1970s to the early 2000s.2 Secular stagnation can be defined as the tendency to long-term (or secular) stagnation in the private accumulation process of the capitalist economy, manifested in rising unemployment and excess capacity and a slowdown in overall economic growth. It is often referred to simply as “stagnation.” There are numerous theories of secular stagnation but most mainstream theories hearken back to Hansen, who was Keynes’s leading early follower in the United States, and who derived the idea from various suggestions in Keynes’s General Theory of Employment, Interest and Money (1936).

Responses to Summers have been all over the map, reflecting both the fact that the capitalist economy has been slowing down, and the role in denying it by many of those seeking to legitimate the system. Stanford economist John B. Taylor contributed a stalwart denial of secular stagnation in the Wall Street Journal. In contrast, Paul Krugman, who is closely aligned with Summers, endorsed secular stagnation on several occasions in the New York Times. Other notable economists such as Brad DeLong and Michael Spence soon weighed in with their own views.3

Three prominent economists have new books directly addressing the phenomena of secular stagnation.4 It has now been formally modelled by Brown University economists Gauti Eggertsson and Neil Mehrotra, while Thomas Piketty’s high-profile book bases its theoretical argument and policy recommendations on stagnation tendencies of capitalism. This explosion of interest in the Summers/Krugman version of stagnation has also resulted in a collection of articles and debate, edited by Coen Teulings and Richard Baldwin, entitled Secular Stagnation: Facts, Causes and Cures.5

Seven years after “The Great Financial Crisis” of 2007–2008, the recovery remains sluggish. It can be argued that the length and depth of the Great Financial Crisis is a rather ordinary cyclical crisis. However, the monetary and fiscal measures to combat it were extraordinary. This has resulted in a widespread sense that there will not be a return to “normal.” Summers/Krugman’s resurrection within the mainstream of Hansen’s concept of secular stagnation is an attempt to explain how extraordinary policy measures following the 2007–2008 crisis merely led to the stabilization of a lethargic, if not comatose, economy.

But what do these economists mean by secular stagnation? If stagnation is a reality, does their conception of it make current policy tools obsolete? And what is the relationship between the Summers/Krugman notion of secular stagnation and the monopoly-finance capital theory?

... ... ...

In “secular stagnation,” the term “secular” is intended to differentiate between the normal business cycle and long-term, chronic stagnation. A long-term slowdown in the economy over decades can be seen as superimposed on the regular business cycle, reflecting the trend rather than the cycle.

In the general language of economics, secular stagnation, or simply stagnation, thus implies that the long-run potential economic growth has fallen, constituting the first pillar of MISS. This has been most forcefully argued for by Robert Gordon, as well as Garry Kasparov and Peter Thiel.6 Their argument is that the cumulative growth effect of current (and future) technological changes will be far weaker than in the past. Moreover, demographic changes place limits on the development of “human capital.” The focus is on technology, which orthodox economics generally sees as a factor external to the economy and on the supply-side (i.e., in relation to cost). Gordon’s position is thus different than that of moderate Keynesians like Summers and Krugman, who focus on demand-side contradictions of the system.

In Gordon’s supply-side, technocratic view, there are forces at work that will limit the growth in productive input and the efficiency of these inputs. This pillar of MISS emphasizes that it is constraints on the aggregate supply-side of the economy that have diminished absolutely the long-run potential growth.

The second pillar of MISS, also a supply-side view, goes back at least to Joseph Schumpeter. To explain the massive slump of 1937, Schumpeter maintained there had emerged a growing anti-business climate. Moreover, he contended that the rise of the modern corporation had displaced the role of the entrepreneur; the anti-business spirit had a repressive effect on entrepreneurs’ confidence and optimism.7 Today, this second pillar of MISS has been resurrected suggestively by John B. Taylor, who argues the poor recovery is best “explained by policy uncertainty” and “increased regulation” that is unfavorable to business. Likewise, Baker, Bloom, and Davis have forcefully argued that political uncertainty can hold back private investment and economic growth.8

Summers and Krugman, as Keynesians, emphasize a third MISS pillar, derived from Keynes’s famous liquidity trap theory, which contends that the “full-employment real interest rate” has declined in recent years. Indeed, both Summers and Krugman demonstrate that real interest rates have declined over recent decades, therefore moving from an exogenous explanation (as in pillars one and two) to a more endogenous explanation of secular stagnation.9 The ultimate problem here is lack of investment demand, such that, in order for net investment to occur at all, interest rates have to be driven to near zero or below. Their strong argument is that there are now times when negative real interest rates are needed to equate saving and investment with full employment.

However, “interest rates are not fully flexible in modern economies”—in other words, market-determined interest rate adjustments chronically fail to achieve full employment. Summers contends there are financial forces that prohibit the real interest rate from becoming negative; hence, full employment cannot be realized.10

Some theorists contend that there has been demographic structural shifts increasing the supply of saving, thus decreasing interest rates. These shifts include an increase in life expectancy, a decrease in retirement age, and a decline in the growth rate of population.

Others, including Summers, point out that stagnation in capital formation (or accumulation) can be attributed to a decrease in the demand for loanable funds for investment. One mainstream explanation offered for this is that today’s new technologies and companies, such as Google, Microsoft, Amazon, and Facebook, require far less capital investment. Another hypothesis is that there has been an important decrease in the demand for loanable funds, although they argue this is due to a preference for safe assets. These factors can function together to keep the real interest rate very low. The policy implication of secular low interest rates is that monetary policy is more difficult to implement effectually; during a recession, it is weakened and can even become ineffectual.

Edward Glaeser, focusing on “secular joblessness,” places severe doubt on the first pillar of MISS, but then makes a very important additional argument. Glaeser rejects the notion that there has been a slowdown in technological innovation; innovation is simply “unrelenting.” Likewise, he is far less concerned with secular low real interest rates, which may be far more cyclical. “Therefore,” contends Glaeser, “stagnation is likely to be temporary.”

Nonetheless, Glaeser underscores secular joblessness, and thus the dysfunction of U.S. labor markets constitutes a fourth pillar of MISS: “The dysfunction in the labour market is real and serious, and seems unlikely to be solved by any obvious economic trend.” Somehow, then, the problem is due to a misfit of skills or “human capital” on the side of workers, who thus need retraining. “The massive secular trend in joblessness is a terrible social problem for the US, and one that the country must try to address” with targeted policy.11 Glaeser’s argument for the dysfunction of U.S. labor markets is based on recession-generated shocks to employment, specifically of less-skilled U.S. workers. After 1970, when workers lost their job, the damage to human capital became permanent. In short, when human capital depreciates due to unemployment, overall abilities and “talent” are “lost” permanently. This may be because the skills required in today’s economy need to be constantly practiced to be retained. Thus, there is a ratchet-like effect in joblessness caused by recessions, whereby recession-linked joblessness is not fully reversed during recoveries—and all this is related to skills (the human capital of the workers), and not to capital itself. According to Glaeser, the ratchet-like effect of recession-linked joblessness is further exacerbated by the U.S. social-safety net, which has “made joblessness less painful and increased the incentives to stay out of work.”12

Glaeser contends that, if his secular joblessness argument is correct, the macroeconomic fiscal interventions argued for by Summers and Krugman are off-base.13 Instead, the safety net should be redesigned in order to encourage rather than discourage people from working. Additionally, incentives to work need to be radically improved through targeted investments in education and workforce training.14 Such views within the mainstream debate, emphasizing exogenous factors, are generally promoted by freshwater (conservative) rather than saltwater (liberal) economists. Thus, they tend to emphasize supply-side or cost factors.

The fifth pillar of MISS contends that output and productivity growth are stagnant due to a failure to invest in infrastructure, education, and training. Nearly all versions of MISS subscribe to some version of this, although there are both conservative and liberal variations. Barry Eichengreen underscores this pillar and condemns recent U.S. fiscal developments that have “cut to the bone” federal government spending devoted to infrastructure, education, and training.

The fifth pillar of MISS necessarily reflects an imbalance between public and private investment spending. Many theorists maintain that the imbalance between public and private investment spending, hence secular stagnation, “is not inevitable.” For example, Eichengreen contends if “the US experiences secular stagnation, the condition will be self-inflicted. It will reflect the country’s failure to address its infrastructure, education and training needs. It will reflect its failure to…support aggregate demand in an effort to bring the long-term unemployed back into the labour market.”15

The sixth pillar of MISS argues that the “debt overhang” from the overleveraging of financial firms and households, as well as private and public indebtedness, are a serious drag on the economy. This position has been argued for most forcefully by several colleagues of Summers at Harvard, most notably Carmen Reinhart and Kenneth Rogoff.16 Atif Mian and Amir Sufi also argue that household indebtedness was the primary culprit causing the economic collapse of 2007–2008. Their policy recommendation is that the risk to mortgage borrowers must be reduced to avoid future calamities.17

As noted, the defenders of MISS do not necessarily support a compatibility between the above six pillars: those favored by conservatives are supply-side and exogenous in emphasis, while liberals tend towards demand-side and endogenous ones. Instead, most often these pillars are developed as competing theories to explain the warrant of some aspect of secular stagnation, and/or to defend particular policy positions while criticizing alternative policy positions. However, the concern here is not whether there is the possibility for a synthesis of mainstream views. Rather, the emphasis is on how partial and separate such explanations are, both individually and in combination.

Neoliberal economy actually needs bubbles to function

As Krugman said "We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate." In other words blowing bubbles is the fundamental way neoliberal economy functions, not an anomaly.

As much as the USA population is accustomed to hypocrisy of the ruling elite and is brainwashed by MSM, this news, delivered to them personally by the crisis of 2008 was too much for them not question the fundamentals (A Primer on Neoliberalism):

Of course, the irony that those same institutions would now themselves agree that those “anti-capitalist” regulations are required is of course barely noted. Such options now being considered are not anti-capitalist. However, they could be described as more regulatory or managed rather than completely free or laissez faire capitalism, which critics of regulation have often preferred.

But a regulatory capitalist economy is very different to a state-based command economy, the style of which the Soviet Union was known for. The points is that there are various forms of capitalism, not just the black-and-white capitalism and communism. And at the same time, the most extreme forms of capitalism can also lead to the bigger bubbles and the bigger busts.

In that context, the financial crisis, as severe as it was, led to key architects of the system admitting to flaws in key aspects of the ideology.

At the end of 2008, Alan Greenspan was summoned to the U.S. Congress to testify about the financial crisis. His tenure at the Federal Reserve had been long and lauded, and Congress wanted to know what had gone wrong. Henry Waxman questioned him:

[Greenspan’s flaw] warped his view about how the world was organized, about the sociology of the market. And Greenspan is not alone. Larry Summers, the president’s senior economic advisor, has had to come to terms with a similar error—his view that the market was inherently self-stabilizing has been “dealt a fatal blow.” Hank Paulson, Bush’s treasury secretary, has shrugged his shoulders with similar resignation. Even Jim Cramer from CNBC’s Mad Money admitted defeat: “The only guy who really called this right was Karl Marx.” One after the other, the celebrants of the free market are finding themselves, to use the language of the market, corrected.

Raj Patel, Flaw PDF formatted document, The Value of Nothing, (Picador, 2010), pp.4, 6-7

Now for the second time in history, the challenge is to save capitalism from itself

Now for the second time in history, the challenge is to save capitalism from itself: to recognize the great strengths of open, competitive markets while rejecting the extreme capitalism and unrestrained greed that have perverted so much of the global financial system in recent times. It took such a statesman as Franklin Delano Roosevelt to rebuild American capitalism after the Great Depression. New Deal policies allowed to rebuild postwar domestic demand, to engineer the Marshall Plan to rebuild Europe and to set in place the Bretton Woods system to govern international economic engagement.

With the abolishment of those policies blowing of one bubble after another, each followed by a financial crisis  became standard chain of the events. Since 1973 we already have a half-dozen bubbles following by economic crisis. It started with  Savings and loan crisis which partially was caused by the deregulation of S&Ls in 1980, by the Depository Institutions Deregulation and Monetary Control Act signed by President Jimmy Carter on March 31, 1980, an important step is a series that eliminated regulations initially designed to prevent lending excesses and minimize failures.

To hide this unpleasant fact neoliberals resort to so called the Great Neoliberal Lie:

What is neoliberalism

The fallacious and utterly misleading argument that the global economic crisis (credit crunch) was caused by excessive state spending, rather than by the reckless gambling of the deregulated, neoliberalized financial sector.

Just as with other pseudo-scientific theories and fundamentalist ideologies, the excuse that "we just weren't fundamentalist enough last time" is always there. The neoliberal pushers of the establishment know that pure free-market economies are as much of an absurd fairytale as 100% pure communist economies, however they keep pushing for further privatizations, tax cuts for the rich, wage repression for the ordinary, and reckless financial sector deregulations precisely because they are the direct beneficiaries of these policies. Take the constantly widening wealth gap in the UK throughout three decades of neoliberal policy. The minority of beneficiaries from this ever widening wealth gap are the business classes, financial sector workers, the mainstream media elite and the political classes. It is no wonder at all that these people think neoliberalism is a successful ideology. Within their bubbles of wealth and privilege it has been. To everyone else it has been an absolute disaster.

Returning to a point I raised earlier in the article; one of the main problems with the concept of "neoliberalism" is the nebulousness of the definition. It is like a form of libertarianism, however it completely neglects the fundamental libertarian idea of non-aggression. In fact, it is so closely related to that other (highly aggressive) US born political ideology of Neo-Conservatism that many people get the two concepts muddled up. A true libertarian would never approve of vast taxpayer funded military budgets, the waging of imperialist wars of aggression nor the wanton destruction of the environment in pursuit of profit.

Another concept that is closely related to neoliberalism is the ideology of minarchism (small stateism), however the neoliberal brigade seem perfectly happy to ignore the small-state ideology when it suits their personal interests. Take the vast banker bailouts (the biggest state subsidies in human history) that were needed to save the neoliberalised global financial sector from the consequences of their own reckless gambling, the exponential growth of the parasitic corporate outsourcing sector (corporations that make virtually 100% of their turnover from the state) and the ludicrous housing subsidies (such as "Help to Buy and Housing Benefits) that have fueled the reinflation of yet another property Ponzi bubble.

The Godfather of neoliberalism was Milton Friedman. He made the case that illegal drugs should be legalised in order to create a free-market drug trade, which is one of the very few things I agreed with him about. However this is politically inconvenient (because the illegal drug market is a vital source of financial sector liquidity) so unlike so many of his neoliberal ideas that have consistently failed, yet remain incredibly popular with the wealthy elite, Friedman's libertarian drug legalisation proposals have never even been tried out.

The fact that neoliberals are so often prepared to ignore the fundamental principles of libertarianism (the non-aggression principle, drug legalisation, individual freedoms, the right to peaceful protest ...) and abuse the fundamental principles of small state minarchism (vast taxpayer funded bailouts for their financial sector friends, £billions in taxpayer funded outsourcing contracts, alcohol price fixing schemes) demonstrate that neoliberalism is actually more like Ayn Rand's barmy (greed is the only virtue, all other "virtues" are aberrations) pseudo-philosophical ideology of objectivism  than a set of formal economic theories.

The result of neoliberal economic theories has been proven time and again. Countries that embrace the neoliberal pseudo-economic ideology end up with "crony capitalism", where the poor and ordinary suffer "austerity", wage repression, revocation of labor rights and the right to protest, whilst a tiny cabal of corporate interests and establishment insiders enrich themselves via anti-competitive practices, outright criminality and corruption and vast socialism-for-the-rich schemes.

Neoliberal fanatics in powerful positions have demonstrated time and again that they will willingly ditch their right-wing libertarian and minarchist "principles" if those principles happen to conflict with their own personal self-interest. Neoliberalism is less of a formal set of economic theories than an error strewn obfuscation narrative to promote the economic interests, and  justify the personal greed of the wealthy, self-serving establishment elite.
 

Bubbles as the neoliberal tool for wealth redistribution

The 1930s, a well researched period of balance-sheet recession, provides some interesting perspective despite large historical distance.  Roosevelt was no socialist, but his New Deal did frighten many businesses, especially large business which BTW attempted a coupe to remove him from is position. Fortunately for Roosevelt CIA did not exist yet.  And New Deal  government projects has been much bigger and bolder, then anything Obama ever tried, because Obama administration was constrained in its action by dominant neoliberal thinking. Like regulatory capture, which is an immanent feature of neoliberalism,  there is also less known and less visible ideological capture of the government. Which also makes neoliberalism more similar to bolshevism as this ideological capture and related inability of the USSR elite to modernize the economy on some "mixed" principles, when over-centralization stopped working. It, along with the collapse of the ideology,  probably was one of the main reasons of the collapse of the USSR.  Chinese leadership managed to do this and introduced "new economic policies"(NEP). 

Uner New deal regime when public investment and hence aggregate demand expanded, the economy started to grow anyway. Roosevelt did have a vision and he did convince the electorate about the way to go. Cheap optimism of Reagan, or even audacity of hope "Obama style" were not enough. After all, as Francis Bacon may remind us: “Hope is a good breakfast, but it is a bad supper” (Apophthegms, 1624).

Obama/Bernanke-style attempts to stimulate growth by pure injection of cheap money in this environment not only inflate new bubbles instead of old one, with which the fighting starts. They also lead to massive redistribution of wealth that makes the problem even worse:

Paul Krugman tells us that Larry Summers joined the camp concerned about secular stagnation in his I.M.F. talk last week, something that I had not picked up from prior coverage of the session. This is good news, but I would qualify a few of the points that Krugman makes in his elaboration of Summers' remarks.

First, while the economy may presently need asset bubbles to maintain full employment (a point I made in Plunder and Blunder: The Rise and Fall of the Bubble Economy), it doesn't follow that we should not be concerned about asset bubbles. The problem with bubbles is that their inflation and inevitable deflation lead to massive redistribution of wealth.

Larry Summers was the first establishment economist who conceded that this is the fact (Wikipedia)

... Larry Summers presented his view during November 2013 that secular (long-term) stagnation may be a reason that U.S. growth is insufficient to reach full employment: "Suppose then that the short term real interest rate that was consistent with full employment [i.e., the "natural rate"] had fallen to negative two or negative three percent. Even with artificial stimulus to demand you wouldn't see any excess demand. Even with a resumption in normal credit conditions you would have a lot of difficulty getting back to full employment."[13][14]

Robert J. Gordon wrote in August 2012:

"Even if innovation were to continue into the future at the rate of the two decades before 2007, the U.S. faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9 percent annual rate experienced between 1860 and 2007. These include demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt. A provocative 'exercise in subtraction' suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades".[15]

One hypothesis is that high levels of productivity greater than the economic growth rate are creating economic slack, in which fewer workers are required to meet the demand for goods and services. Firms have less incentive to invest and instead prefer to hold cash. Journalist Marco Nappolini wrote in November 2013:

 "If the expected return on investment over the short term is presumed to be lower than the cost of holding cash then even pushing interest rates to zero will have little effect. That is, if you cannot push real interest rates below the so-called short run natural rate [i.e., the rate of interest required to achieve the growth rate necessary to achieve full employment] you will struggle to bring forward future consumption, blunting the short run effectiveness of monetary policy...Moreover, if you fail to bring it below the long run natural rate there is a strong disincentive to increase fixed capital investment and a consequent preference to hold cash or cash-like instruments in an attempt to mitigate risk. This could cause longer-term hysteresis effects and reduce an economy's potential output."[13] 

Cost of energy as a defining new factor

The cost of energy is probably another reason of secular stagnation along with excessive public and private debt. Rising cost of energy is deadly for capitalism.  Here are some comments that might clarify the situation:

raskolnikov:

This is the biggest crybaby column Krugman's ever written. He should be ashamed of himself and return his Nobel prize immediately. Has he ever put down Keynes long enough to read a little Marx?  Here's Robert Brenner summing it up in 2009:

 What mainly accounts for the long-term weakening of the real economy is a deep, and lasting, decline of the rate of return on capital investment since the end of the 1960s.

The failure of the rate of profit to recover is all the more remarkable, in view of the huge drop-off in the growth of real wages over the period.

The main cause, though not the only cause, of the decline in the rate of profit has been a persistent tendency to overcapacity in global manufacturing industries."

 There's more, too. Instead of siding with crackpot Summers, Krugman should expand his research and be of some use to us all.

Kievite

I am not sure that it is correct to think about public debt as internal debt. It's all about energy.

That means that public debt is to a large extent foreign due to unalterable oil consumption (and related trade deficits). And that completely changes the situation unless you are the owner of the world reserve currency.

But even in the latter case (exorbitant privilege as Valéry Giscard d'Estaing called it ) you can expect attacks on the status of the currency as world reserve currency. The growth is still supported via militarization, forced opening of foreign markets (with military force, if necessary) and conversion of the state into national security state. But as Napoleon admitted "You can do anything with bayonets except sit on them"

One positive thing about high public (and to a large extent foreign owned) debt in the USA is that it undermines what Bacevich called "new American militarism" (http://www.amazon.com/The-New-American-Militarism-Americans/dp/0195173384). Bacevich argues that this is distinct political course adopted by the "defense intellectuals," the evangelicals, and the neocons. And they will never regret their failed efforts such as Iraq invasion.

From Amazon review:

=== Quote ===

Bacevich clearly links our present predicaments both at home and abroad to the ever greater need for natural resources, especially oil from the Persian Gulf. He demolishes all of the reasons for our bellicosity based on ideals and links it directly to our insatiable appetite for oil and economic expansion. Naturally, like thousands of writers before him, he points out the need for a national energy policy based on more effective use of resources and alternative means of production.

=== End of Quote ==

Heinberg's Five Axioms of Sustainability

As Heinberg explained fossil fuels, primarily oil, permeate every aspect of our modern culture - from agriculture to cities and a long-term perspective. In the age of almost 7 billion people demanding more and more of limited resources, the media, politicians and governments tend to only report short-term perspectives and ignore Heinberg's Five Axioms of Sustainability to the extent that these concepts are taboo to be spoken, discussed or thought (Heinberg, Richard (2007) Five Axioms of Sustainability):

1. (Tainter’s Axiom): Any society that continues to use critical resources unsustainably will collapse.

Exception: A society can avoid collapse by finding replacement resources.

Limit to the exception: In a finite world, the number of possible replacements is also finite.

...

2. (Bartlett’s Axiom): Population growth and/or growth in the rates of consumption of resources cannot be sustained.

...

3. To be sustainable, the use of renewable resources must proceed at a rate that is less than or equal to the rate of natural replenishment.

...

4. To be sustainable, the use of non-renewable resources must proceed at a rate that is declining, and the rate of decline must be greater than or equal to the rate of depletion.

The rate of depletion is defined as the amount being extracted and used during a specified time interval (usually a year) as a percentage of the amount left to extract.

...

5. Sustainability requires that substances introduced into the environment from human activities be minimized and rendered harmless to biosphere functions.

In cases where pollution from the extraction and consumption of non-renewable resources that has proceeded at expanding rates for some time threatens the viability of ecosystems, reduction in the rates of extraction and consumption of those resources may need to occur at a rate greater than the rate of depletion. 

Archaeologist Joseph Tainter, in his classic study The Collapse of Complex Societies (1988), demonstrated that collapse is a frequent if not universal fate of complex societies and argued that collapse results from declining returns on efforts to support growing levels of societal complexity using energy harvested from the environment.  Jared Diamond’s popular book Collapse: How Societies Choose to Fail or Succeed (2005) similarly  makes the argument that collapse is the common destiny of societies that ignore resourse constraints. This axiom defines sustainability by the consequences of its absence—that is, collapse.

Historical periods of stagnation in the United States

Adapted from Wikipedia

Excluding the current, there were two period of stagnation in the USA history:

Construction of structures, residential, commercial and industrial, fell off dramatically during the depression, but housing was well on its way to recovering by the late 1930s.[17]

The depression years were the period of the highest total factor productivity growth in the United States, primarily to the building of roads and bridges, abandonment of unneeded railroad track and reduction in railroad employment, expansion of electric utilities and improvements wholesale and retail distribution.[17]

The war created pent up demand for many items as factories that once produced automobiles and other machinery converted to production of tanks, guns, military vehicles and supplies. Tires had been rationed due to shortages of natural rubber; however, the U.S. government built synthetic rubber plants. The U.S. government also built synthetic ammonia plants, aluminum smelters, aviation fuel refineries and aircraft engine factories during the war.[17] After the war commercial aviation, plastics and synthetic rubber would become major industries and synthetic ammonia was used for fertilizer. The end of armaments production free up hundreds of thousands of machine tools, which were made available for other industries. They were needed in the rapidly growing aircraft manufacturing industry.[18]

The memory of war created a need for preparedness in the United States. This resulted in constant spending for defense programs, creating what President Eisenhower called the military-industrial complex.

U.S. birth rates began to recover by the time of World War II, and turned into the baby boom of the postwar decades. A building boom commenced in the years following the war. Suburbs began a rapid expansion and automobile ownership increased.[17]

High-yielding crops and chemical fertilizers dramatically increased crop yields and greatly lowered the cost of food, giving consumers more discretionary income. Railroad locomotives switched from steam to diesel power, with a large increase in fuel efficiency. Most importantly, cheap food essentially eliminated malnutrition in countries like the United States and much of Europe.

Many trends that began before the war continued:

Researchers who contributed to understating secular stagnation

One of the first researchers who clearly attributed secular stagnation problem to neoliberalism was Alan Nasser, Professor Emeritus of Political Economy and Philosophy at The Evergreen State College. In his September 22, 2005 paper  ECONOMIC LAWS, STRUCTURAL TENDENCIES, SECULAR STAGNATION THEORY, AND THE FATE OF NEOLIBERALISM  he pointed out the key features of secular stagnation long before Summers started to understand the problem  and even befor the economic crash of 2008 ;-)

September 22, 2005 | alannasser.org

Alan Nasser Invited presentation, University of Lille,

"We have now grown used to the idea that most ordinary or natural growth processes (the growth of organisms, or popu- lations of organisms or, for example, of cities) is not merely limited, but self-limited, i.e. is slowed down or eventually brought to a standstill as a consequence of the act of growth itself. For one reason or another, but always for some reason, organisms cannot grow indefinitely, just as beyond a certain level of size or density a population defeats its own capacity for further growth."

Sir Peter Medawar, The Revolution of Hope

"A business firm grows and attains great strength, and afterwards perhaps stagnates and decays; and at the turning point there is a balancing or equilibrium of the forces of life and decay. And as we reach to the higher stages of our work, we shall need ever more and more to think of economic forces as those which make a young man grow in strength until he reaches his prime; after which he gradually becomes stiff and inactive, till at last he sinks to make room for other and more vigorous life."

Alfred Marshall, Principals of Economics (1890)

"Though Keynes's 'breakdown theory is quite different from Marx's, it has an important feature in common with the latter: in both theories, the breakdown is motivated by causes inherent to the working of the economic engine, not by the action of factors external to it."

Joseph Schumpeter, Ten Great Economists

In this paper I shall address two major issues. Firstly, I shall discuss the implications for economic theory of a conception of economic laws widely at variance with the empiricist and/or positivist account of what laws are, how they are discovered, and how they are related to theory. At the same time, I will reject one cornerstone of anti-positivist thought, namely the idea that one cannot provide an account of laws that is fundamentally the same for the natural and the social sciences. Thus, I shall argue that an anti-positivist account of laws is entirely compatible with a conception of scientific laws that applies to both the "hard" (natural) and the "soft" (social) sciences. I shall defend this position by showing its application to economics and economic laws. In doing so, I will compare and contrast both natural-scientific (primarily physical) laws and social-scientific (primarily economic) laws. Secondly, I will argue that perhaps the most significant economic law descriptive of mature capitalism is the law of secular stagnation. The latter states that it is the natural tendency of a developed, industrialized capitalist economy to default to a state of chronic excess capacity and underconsumption. And this is itself a result of the tendency in advanced capitalism for the economic surplus (roughly, the difference between the Gross Domectic Product and the cost of producing the GDP) to grow at a rate more rapid than the growth of profitable industrial investment opportunities. In the course of my discussion I will use the United States as a paradigm case, Much as Marx attempted to identify the underlying features of the accumulation process by reference to England during the Industrial Revulution.

This has in fact been the state of global capital since the end of the "Golden Age" and the commencement of the age of globalized Reaganism/Thatcherism, i.e. the Age of Neoliberalism. I date the transition as commencing in 1973, the last year of post-War Keynesian growth rates in the USA. In fact, I will argue, neoliberal economic policy exacerbates capitalism'a tendency to stagnation. Let me begin with an account of economic laws.

LAWS, GENERATIVE MECHANISMS AND TENDENCIES

On the Humean or radical empiricist (positivist) account of laws, the latter are descriptions of observed regularities. Presumably, the scientist observes a "constant conjunction" of different kinds of happening, and infers from the regularity of the conjunction that the latter could not be merely accidental, and so concludes that the observed pattern of regularities must be nomological or law-like. 'Sodium chloride dissolves in water' and 'Metal expands when heated' would be simple examples of the results of this account of how laws of nature are discovered.

That this empiricist account is flawed becomes evident when we consider full-fledged laws of a genuine natural science, e.g. physics. I emphasize that laws are components of theories, which themselves are constitutive of established scientific disciplines, such as physics, chemistry, and biology. In fact, the two "laws" mentioned at the end of the preceding paragraph are not laws of physics at all. Among the genuine laws of physics is, e.g., 'Falling bodies near the surface of the earth accelerate at a constant rate.' This law is certainly not established by the observation of repeated conjunctions of events. On the contrary, actually observed falling bodies in "open systems", that is, in the circumstances of everyday life, conspicuously fail to conform to this law. Yet this is not taken to refute the law. For the law describes the behavior of bodies in a vacuum, that is to say, in a "closed system", one created by the scientist, typically in a laboratory situation. Philosophers of science have tended to ignore the distinction between regularities observed only in closed systems, and conjunctions observed in everyday life, which, as such, have no value as contributions to scientific knowledge. These philosophers have, accordingly, written as if the regularities in question were features of open systems, of nature. This confusion impedes our understanding of all types of laws, from physical to economic.

This failure –until relatively recently- of philosophers of science to properly attend to the importance of laboratory work in the acquisition of scientific knowledge is due to the fact that these philosophers have focused almost exclusively on science as established theory, i.e. as a way of representing the world. They had ignored how these theories were actually established. That is, they paid little attention to experiment, which is a way of intervening in the world. This inattention to what happens in closed systems created in the laboratory led thinkers to miss the importance of the concept of tendencies or dispositions in grasping the concept of a law of science. Let us dwell on this point and its relation to economic laws.

It is not that our knowledge of natural laws is not based on observed regularities. The point, rather, is that these regularities are not found in nature. They are found in closed systems, elaborately designed experimental circumstances found in laboratories. Yet, we correctly believe that what we learn in experimental situations gives us knowledge that is not confined to these situations. We believe that what we learn from observations of repeated patterns in experiments gives us not only knowledge of the behavior of objects in laboratory circumstances, but also knowledge of these same (kinds of) objects as they behave in nature, in the open systems of everyday life. But scientifically significant repeated patterns are not found in the world of daily life. This raises profound epistemological and ontological questions.

The most significant epistemological question arises from the following consideration: Were it not for the intervention of the experimenter, closed-system regularities would not obtain. Hence, the experimenter is a causal agent of the pattern of regularities observed in the laboratory. It is these contrived conjunctions which we invoke to justify our belief in (usually causal) laws. And while these regularities are the (partial) result of the intervention of the experimenter, we do not believe that the experimenter in any way originates the laws whose existence is attested to by the contrived regularities. The question therefore arises: What justifies our (correct) belief that knowledge obtained in closed laboratory systems designed by an agent applies also in open systems, i.e. in nature, which of course is not designed by scientists and does not evidence the regularities found under designed experimental circumstances?

I want to suggest that this question comes to the same as the following question: What must nature be like, and what must experiment reveal, in order for experimental knowledge to be able to be legitimately extended to the world outside of the laboratory, i.e. to nature? Note that this is a Realist question: it asks what we must presuppose about the constitution of the world in order that our experimentally-based scientific beliefs be justified. This is the precise Realist counterpart to Kant's Idealist question: What must we presoppose our minds –as opposed to nature or the world- to be like in order for scientific knowledge to be possible? I will argue that the answer to our Realist question provides the conceptual resources to elucidate the general nature of economic laws and economic theory, and the nature of the subject matter investigated by economists.

I will argue that since we believe that what we learn by experimental observation justifies our claim to knowledge of the experimental objects as they behave in nature, we must assume that these objects possess natural structures, similar to what Aristotle and the scholastics called "natures" or "essences." A natural structure must be conceived as what Critical Realists call a generative mechanism (hereafter, GM). The latter is a specific mode of material organization. What GMs generate are tendencies or dispositions to behave in characteristic ways. The statement that a physical thing or a social institution or structure tends to generate characteristic regularities is a statement of a law. The natural structure of salt, expressed in chemistry as HCl, is such that when it is mixed with water, whose natural structure or organization is expressed as H2O, it tends to dissolve. Gases tend to expand when heated and falling bodies near the surface of the earth tend to accelerate at a constant rate. These are statements of chemical and physical laws. We shall see that precisely the same kind of analysis can be made of laws in economics.

Tendencies are not the same as trends. The latter are merely observed regularities; there need be no implication that an underlying structural feature of the thing in question generates the regularity. This feature of laws is reflected in ordinary language in non-scientific contexts: we might say "He has a tendency to exaggerate." We mean that a disposition to exaggerate is a natural expression of his underlying character. We do not usually mean that he exaggerates whenever it is possible for him to exaggerate. This is part of the meaning of 'tendency.' Thus, tendencies can exist without being exercised. This happens when, e.g. salt is not mixed with water. Salt's nomological tendency to dissolve in water remains its categorical property even in the absence of circumstances in which its tendency to dissolve can be exercised. In addition, tendencies can be exercised without being realized. This is the case in the natural sciences when we observe, in non-laboratory situations, falling bodies accelerating at different rates. Indeed, no falling body in open systems is observed to accelerate at a constant or the same rate. But of course this is not taken to falsify the law of falling bodies. In nature, GMs continue to act in their characteristic ways without producing the patterned outcomes observable in closed experimental systems. This is so because in nature a multiplicity of GMs combine, interact and collide such as to result in the (scientifically irrelevant) flux of phenomena of the everyday world. The realization of a natural tendency can, in other words, be offset by counteracting forces. Thus, empiricism's mistake is to fail to recognize that GMs operate independent of the effects they generate. That is, GMs endure and go on acting (in the way that experimental closure enables us to identify) in nature, i.e. in open systems, where patterned regularities do not prevail. Statements about tendencies are not equivalent, salva veritate, to statements about their effects. Laws may exist and exercise their tendencies or powers even though no Humean "constant conjunctions" are observed. (This would be the case if it happened that the practice of creating closed experimental conditions had never been engaged in, i.e. in a world without science.)

LAWS, GENERATIVE MECHANISMS AND TENDENCIES IN ECONOMICS

GMs are not confined to the natural world. Natural structures are not the only structures there are. Plainly, there are humanely constructed structures. Capitalism is one such structure. Structures of this kind, GMs, that are dynamic by nature, i.e. which are characteristically diachronic, be they natural or socially constituted, share the same ontology. This should not be confused with the radical empiricist (positivist) claim that the natural and the social sciences share the same method. Clearly they do not: closed experimental situations exist but are not typical i istic outcomes ceteris paribus, ie. other things being equal, i.e. ceteris absentibus, other things being absent. When we identify the tendency of a thing, we specify what will happen, as a matter of course, if interfering conditions are absent. That is the point of vacuums in the closed systems created in laboratory experiments: they permit exercised tendencies, i.e. tendencies in operation, to be realized. If we want to know what gases tend to do when acted upon by heat, we eliminate all potential counteracting forces by creating a vacuum in the chamber, so that both gas and heat can express their natures unimpeded.

Thus, implicit in both physical- and social-scientific practice is the crucial distinction between the exercise and the realization (or manifestation) of a tendency. This distinction is essential to structural analysis in economics because of the impossibility of creating the social equivalent of a vacuum in the social sciences, which deal with the open systems of everyday life, where a great many forces and tendencies collide. Accordingly, just as the law of the tendency of falling bodies to accelerate at a constant rate is not falsified by the failure of falling bodies to behave accordingly in open systems, so too, e.g., the law of the tendency of the growth of productive capacity to outpace the growth of profitable investment opportunities -the thesis of secular stagnation theory- is not undermined by the remarkable growth rates of the Golden Age. In both cases, the presence of offsetting factors prevents the structurally generated tendency from being realized or manifested. I argue that the same can be said for any putative economic law.

In social science –and this is most conspicuous in economics, the most theoretically developed of the human sciences- we compensate for the absence of experimentally closed systems by constructing their functional equivalent, which we might call, in terms redolent of Weber, an ideal-typical theoretical model. It is an unfortunate habit (perhaps a tendency in the above-elaborated sense…) of mainstream economists to employ these models as if they described the open-system observable facts of economic life. This is, I suspect, a consequence of the economic empiricist's mistake referred to above, namely to think that GMs, if they must be spoken of at all, are to be conceived as reducible to their effects. (Recall Hume's claim, inspired by his reading of Newton, to expunge all notions of "power", "generation" and "production" from his analyses.) But, as noted above, GMs in both the social and the natural sciences employ unrealistic models, i.e. models which do not pretend to offer the equivalent of a photographic representation of the world. In both natural-scientific experiments and social-scientific ideal-type models, an attempt is made to abstract from the nonessential. We seek to place the spotlight of theory on what is necessary to the situation, system or institution under investigation, and to prescind from the arbitrary and accidental. In economics we seek to identify those features of capitalism that make it what it is. This enables us to identify capitalism's distinct and characteristic tendencies, and to describe what will happen as a result of the exercise of these tendencies, ceteris absentibus.

That there are such tendencies seems to me to be uncontroversial. We all know, for example, that cyclical downturns are not mere empirical contingencies of capitalist development, but structurally generated tendencies which follow inexorably from the specific mode of organization (structure) of capitalism. And like all tendencies, their realization can be offset, as we have seen above, by counteracting factors, such as fiscal and monetary policy. Other examples would be what Marx called the tendencies of capital to concentrate and centralize. The tendency, and corresponding law, with which I will be primarily concerned in this paper is constitutive of the theory of secular stagnation, and is far more likely than the immediately foregoing examples to generate controversy. I refer to the tendency of mature capitalism to suffer from a chronic paucity of profitable industrial investment opportunities, relative to the great magnitude of its investable surplus. Let us look more closely at this tendency.

THE THEORY OF SECULAR STAGNATION

It is worth mentioning that the view that the continuous accumulation of capital is both essential to the normal development of capitalist societies and essentially self-limiting was held by virtually all of the major modern political economists, in the form of one version or another of the doctrine of the falling rate of profit. Adam Smith explained the secular decline of the profit rate by the increasing abundance of capital in a developing capitalist society. Ricardo and Mill believed that the rate of profit would be depressed by the diminishing productivity of the land which would drive up the price of wage goods and therefore of the wages of labor, and so drive down the profits of capital. Marx pointed to the increasing capital-intensity of industry and the paucity of working-class purchasing power relative to the productive capacity of the economy, as the principal threat to the profit rate. And Keynes held that in mature capitalist economies the "marginal efficiency of capital", i.e. the expected rate of return (over cost) on an additional unit of a given capital asset, would tend to decline. All these thinkers had an at least intuitive appreciation of the fact that the growth of capital tends to be terminally self-limiting. (It is worth citing a remark of Joseph Shumpeter at this point:

"Though Keynes's 'breakdown theory is quite different from Marx's, it has an important feature in common with the latter: in both theories, the breakdown is motivated by causes inherent to the working of the economic engine, not by the action of factors external to it.")

In my estimation, no one understood the underlying dynamics of the tendency to stagnation better than the Polish economist Michal Kalecki, who is known to have developed the essentials of Keynes's General Theory before Keynes himself (and to have produced far more elegant mathematical formulations thereof). Perhaps the best way to understand Kalecki's thought is to see him as having argued that certain features of a not-yet-mature industrializing economy persist after the process of industrialization has been accomplished, with the effect that the developed capitalist economy is saddled with a problem of chronic excess capacity. Let me sketch this train of thought.

In the course of their natural growth capitalist economies reach a level of industrial development characterizable as maturity, a point beyond which growth must either cease, or be sustained by exogenous (in a sense to be elucidated below) means. Straight away we are confronted with a rejection of an assumption that is implicit in mainstream neoclassical theory, viz. that both the supply and the demand curves shift, virtually automatically, to the right. On the stagnationist conceptualization of growth or development, the process of development is not everlasting, but rather is at some point accomplished. There is the period, industrialization, during which the economy is developing, and which culminates in a (finally) industrialized or developed infrastructure. At this stage there will have been built up, or "accumulated", a complement of plant and equipment in steel production, machine tools, power stations, transport systems, etc., that is capable of satisfying a level of consumption demand consistent with the moral limits of a reasonably civilized style of life, the constraints imposed by a finite fund of natural resources, and, most importantly for stagnation theory, the limited possibilities of what Marx called "expanded reproduction" imposed by the accumulation process itself.

This account point can be expanded as follows. During any period of industrialization, the growth of the capital goods industry (hereafter, following Marx, Department I, or DI) must outpace the growth of the consumption goods industries (hereafter, again following Marx, Department II, or DII). Indeed, it belongs to the nature of the process of industrialization that the demand for the output of DI cannot be a function of the behavior of consumption demand; during industrialization, investment demand is both rapid and relatively autonomous. For if the principal project is to develop the means of production, then a disproportionate share of national wealth must be devoted to investment/accumulation at the expense of consumption. Strategic capital goods such as transport and communications networks and steel mills cannot be built bit by bit. This is clear with respect to railroads (Recall Keynes's remark that "Two pyramids are better than one, and two masses for the dead better than one; but two railroads from London to York are not necessarily better than one."), but perhaps not as clear with respect to steel facilities.

Suppose 1) that the efficient production of steel requires equipment with the capacity to produce 200,000 tons of steel, and 2) that demand turns out to be for 300,000 tons. The investor has two alternatives, either to forgo an extra market or to take a chance and add another 200.000 tons. On the second alternative, the one virtually assured in a period of (rapid) industrialization, the manufacturer is left with a surplus capacity of 100,000 tons. Here we see, writ small, a crucial source of two basic tendencies of capitalist development, the unrelenting pressure to expand markets, and the tendency to overproduction of a specific kind, namely the overproduction of capital goods, the tendency to overaccumulation. Each of these tendencies is the basis of a corresponding law of economics: Wherever we find a competitive, profit-driven market economy, we must also find a system-driven tendency to expand markets, and: Wherever we find a competitive, profit-driven market economy, we must also find a system-driven tendency for the growth of productive capacity to outpace the growth of effective demand.

As we have seen, all the major classical political economists anticipated the stationary state; they all assumed that the period of development or industrialization would come to an end. Basic industries would be in place, and DI would be capable of meeting all the replacement and expansion demands of DII. Prescinding for the moment from the emergence of new industries, DI would no longer be a source of substantial expansion demand for its own output; most of DI's internal expansion demand would be extinct.

But this is not th hread of classical (and perhaps neoclassical) theory contains the assurance that the capitalist economy provides a mechanism that in the long run counteracts the tendency of the demand for the products of DI to peter out. As one might expect, this is the price mechanism, which brings about, in the circumstances described above, a falling rate of profit (or interest) and thereby a simultaneous check on accumulation and spur to consumption. The causal chain is simple: the fall of the profit rate would lower capital's share of national income, i.e. it would transfer income from capital to labor. Thus, the demand gap created by the sharp waning of DI's expansion demand would be made up by the increase in consumption demand, which would of course mean an expansion in the demand for the output of DII. Moreover, an immediate expansion of DII at the expense of DI in order to assure a rapid transition out of the stationary state would be entirely feasible given the adaptability of certain key industries in DI to new market conditions resulting from the newly-expanded purchasing power of the working class. The construction of new factories could, for example, yield to the construction of new homes.

The theoretical elegance of this scenario is impressive -almost inspirational- but, alas for illusions, the price mechanism does not work this way. For the above-mentioned transfer in national income from capital to labor is supposed to happen when industrialization comes to an end by virtue of its having been accomplished. But from the capitalists' perspective, it is as if nothing counts as industrialization coming to an end. New industries, for example, can create a situation functionally equivalent to industrialization. "Accumulate, accumulate, that is Moses and the prophets."

We have at this point arrived at a picture of a developed capitalist economy which is in a state of permanent industrialization. Excess capacity prevails and working-class income is stagnant or declining. Interestingly, this has in fact been the state of both the U.S. and the global economy since 1973. According to the foregoing analysis, this reflects the fact that the U.S. and global economies are now instances not merely of the exercise of the law of the tendency of mature capitalism to stagnate, but of its realization. To put it differently: these economies are now in their natural state.

But important questions immediately arise. Why are these economies in their natural state now? And if there is a structurally generated tendency for capitalist economies to stagnate, how shall we account for the historically unprecedented growth rates of the Golden Age? I have barely sketched an outline of a response to these challenges above: if there is indeed a tendency for capitalism to stagnate, then there must have been in operation during the Golden Age what I called "counteracting forces and tendencies" which had spent themselves by the mid-1970s. In the absence of new offsetting forces, the tendency to stagnate has, as we should expect, re-asserted itself. These claims require further elaboration, and it is to this task that I now turn.

SECULAR STAGNATION AND TRANSFORMATIONAL GROWTH

In order to account for the actual pattern of capitalist growth in the context of stagnation theory, we must reflect on the kind of growth required by capitalist economic arrangements. Mainstream theory does not distinguish between kinds of growth if and when it addresses the specific requirements of capitalist growth at all. This is, I believe, a serious error. I will begin by introducing the notion of transformational growth, which transforms the entire way of life of society and absorbs exceptionally large amounts of the investible surplus. My point shall be that a capitalist economy cannot sustain growth merely by producing more and more different types of widgets, in the absence of pervasive structural change. Growth sustained in the latter manner is transformational growth.

We are forced to introduce the concept of transformational growth for reasons related to my earlier discussion of the structural features of mature capitalism which generates a chronic tendency to stagnation. I will now embellish this analysis. It should be clear that capitalism cannot grow in the way in which a balloon grows: its growth cannot leave its proportions intact, i.e. such that there are no new products and no new processes of production. This is to say that a capitalist economy either undergoes transformational growth or it stagnates. The argument is as follows.

Investment expands productive capacity, which in turn requires that demand increase at the same rate as potential production. Without the required rate of demand growth, underutilization/excess capacity will discourage further investment or capital accumulation and the result will of course be stagnation. Let us not address this issue in the manner of the neoclassical economist, who seems to assume that both supply and demand curves can be counted on to perennially shift to the right (absent, of course, undue government interference). But this quaint assumption is belied by the enormous literature on the development and indispensability to capitalism of the marketing and advertising industries, which we might view as massive efforts to counteract Keynes's declining marginal propensity to consume by deliberately creating among the consuming masses a full panoply of "manufactured" consumption desires. These considerations point to the need constantly to exogenously stimulate consumption demand in order to narrow the demand gap generated by the tendency to overaccumulation. But they do not yet establish the need to generate a broad, nation-wide pattern of demand required by structural change and transformational growth.

What is needed at this point are concrete examples of the generators of transformational growth, and of exactly how these generators accomplish one of the fundamental features of transformational growth, the mobilization and coordination of the economic resources of the entire country into a grand national project which stimulates demand not merely for this and that consumption good, but for crucial commodities and institutions such as oil, steel rubber, and other primary products, and communication and transportation facilities. What this requires are what Paul Baran and Paul Sweezy termed, in their influential Monopoly Capital (Monthly Review Press, 1966), "epoch-making innovations". Edward Nell and Robert Heilbroner have characterized these same innovations as "transformative innovations". Let me approach transformative innovations by looking at the tendency to stagnation from yet another perspective, one which focuses on the role of competition as a major force behind the growth of both investment and consumption.

Competition reduces the need for investment by tending to increase both productivity and savings. Let us see how this happens. As a result of competition business is under continuous pressure to cut costs and produce more efficiently. To the extent that business succeeds in these respects, productive potential is increased. At the same time, competition also requires business to hold down wages and salaries and to pay out dividend and profit income relatively sparingly. Together, these pressures hold back both worker and capitalist consumption. The result is a tendency for productive capacity to expand faster than consumption. This means that there is no reason for investment to grow, for capital to achieve the required rate of accumulation, unless there are major pressures transforming the way people live. In the absence of such pressures, we may expect stagnation.

There are two dimensions of transformative innovations which are in fact two aspects of the same phenomenon. One dimension is solely technological, and the other points to changes in a population's entire way of life. Neither of these is part of a process of steady, balloon-like growth, nor is either automatically, or normally, generated by the fundamental capitalist dynamics identified by the mainstream textbooks. For this reason I have called the stimulus imparted by these innovations 'exogenous'. Let us look first at the technological dimension of transformative innovation.

This can be identified, after the owl of Minerva has spread its wings, by reflecting on some of the requirements of ideal-typical capitalism. Neoliberals correctly remind us that the bottom line is of course "freedom", primarily the freedom of capital to roam the world seeking markets, sources of cheap labor and investment opportunities. Microecenomic textbooks in fact tend to assume the perfect mobility of both capital and labor.

Let us focus on sources of power, which became especially important after the industrial revolution. Technological development resulted in the virtually total replacement of human and animal muscle power by inanimate sources of power, mainly water and steam. But reliance on water as a source of power places extreme limits on the mobility of capital, and hence on the possibilities of capitalist growth. Water power is site-specific, and the number of rivers and streams is limited. Moreover, the water had to be fast-running and productive facilities had to be located as far downstream as possible. And of course water power is only seasonally available. These restraints alone place an intolerable obstacle to the free and ongoing accumulation of capital. Here we find an overwhelming incentive to switch from water to steam power. This constitutes a huge stimulus to the accumulation of capital on a national scale.

Capitalism requires sources of power that are independent of nature and can be applied constantly wherever they are needed. And these are precisely what steam power made possible. It was now possible to set up productive facilities virtually anywhere; a major fetter to the accumulation of capital was removed. The universal mobility required by capital was now much more fully realized. At this point I want to emphasize that this technological /economic transformation was necessarily accompanied by profound social and cultural changes. For the steam engine's reduction of the seasonality of water power made possible a feature of work that is increasingly common on a global scale: the emergence of modern year-round work habits. With this change comes a dramatic transformation of our notions (and practices) of work and leisure, with all the consequences these have for the felt experience of everyday life. That is an instance of the second dimension of transformative innovation, i.e. its introduction of dramatic cultural changes, changes in the way populations live.

Much the same can be said for the subsequent shift to electrical power, which makes possible trolley cars, refrigerators (as opposed to what used to be called, in the U.S., "ice boxes"), ranges, toasters, radios, washing machines, fans, et al.

The railroad too is a transformative innovation par excellence. Consider the spectacular effects of railroad expansion: internal transport costs are sharply reduced; both new products and new geographical areas are brought into commercial markets; it is now possible to deliver exports to port with unprecedented efficiency, thereby encouraging the extensive development of the export sector; and impetus is provided to the development of the coal, iron and engineering industries. As with the steam engine, these technological and economic benefits wee necessarily accompanied by profound social and cultural changes. The railroads changed the way of life of the people by binding them as never before. The possibility now existed for mass production, mass consumption and indeed mass culture.

And of course the establishment of a national rail network absorbed massive amounts of investible capital, thereby spurring sustainable growth and offsetting the realization of the economic law that capitalist economies tend to stagnate. Apropos: in the latter third of the nineteenth century, railroad investment in the U.S. amounted to more than all investment in manufacturing industries.

And who can doubt that the transformative effects of the introduction of the automobile were epoch-making? The expansion of the automobile industry was the single most important force in the economic expansion of the 1920s. Car production increased threefold during this decade. (The automobile industry produced 12.7% of all manufactured output, employed 7.1% of all manufacturing workers, and paid 8.7% of all industrial wages.) Immediately after World War II the auto industry continued what was to be its breakneck expansion, and the possibilities created thereby constituted what was perhaps the most extensive transformation of the country's way of life in its history.

Consider the stimulus to capital accumulation and employment constituted by the following, each and all a consequence of the increasing automobilization of American society and culture: the migration of the population from the central city to the suburbs and exurbs (first made possible by the streetcar, before the major streetcar operations were bough and then quickly dismantled by the auto companies); the need for surfaced roads, road construction and maintenance, highway construction and maintenance (which had already accounted for 2% of GDP in 1929); the suburbanization of America, with the attendant construction of housing, schools, hospitals, workplaces, and more; the growth of shopping malls; the expansion of the credit industry; the spread of hotels and motels; and of course the growth of the tourism/travel industry. Never before had any population's way of living been transformed so profoundly in so short a period of time. And of course no one has failed to recognize that Americans' main symbol of their most precious possession, their personal freedom/liberty, is their ability to drive, solo, cars that have increasingly come to resemble tanks. Americans' liberty, embodied in the automobile, has become, literally, a commodity.

The long-term growth of the U.S. economy cannot be adequately explained or described without reference to these transformative innovations. None of these are required by the models of capital accumulation found in neoclassical, Keynesian or Marxian growth theory. After the civil war, growth in the last third of the nineteenth century was spurred primarily by the railroads. This stimulus fizzled, as railroad expansion began to slow down, around 1907, when, in spite of extensive electrification of urban (and even some rural) areas, the U.S. economy began a stretch of slow growth, which lasted until the outbreak of World War I. After the end of the War, the economy experienced a brief slump, which was followed by a period of fairly sustained expansion in the 1920s. The latter, as we have seen, was spurred mainly by the growth of the automobile industry. But the rate of growth of the automobile industry slowed down after 1926, and with it the rate of growth of almost all other manufacturing industries. And wages and employment had not risen as rapidly as production, productivity or profits.

In fact, the economic situation in the U.S. at the end of the 1920s bore a remarkable resemblance to the current economic situation in America. After 1926 overcapacity emerged in many key industries, the most significant of these being automobiles, textiles, and residential construction. Contractionary forces are cumulative: excess capacity caused business confidence to decline, with resulting cutbacks in spending on productive capacity in the consumer durables and capital goods industries. The economy was intensely unsound at the end of the 1920s, and the indications at the time were clear. Consumer demand was held down by a steadily growing inequality of income. Thus, an increasing percentage of total purchases were financed by credit in order to foster purchases of consumer durables. About seventy-five percent of all cars were sold on credit. Accordingly, both home mortgages and installment debt grew rapidly. This was the extension of a trend that had begun as early as 1922, when total personal debt began rising faster than disposable income. Thus, underconsumption and traces of excess capacity, key indicators of stagnationist forces, were in effect from the very beginning of the "roaring '20s". These tendencies became increasingly foregrounded over the course of the decade.

Excess capacity in key manufacturing industries was displacing workers from capital-intensive, technologically advanced sectors to industries relatively devoid of technological advance, i.e. service industries such as trade, finance and government. With capital unable to find sufficiently profitable investment opportunities in high-productivity industries, rampant speculative activity ensued, fostered by the growing concentration of income and therefore savings during the decade. More than two thirds of all personal savings was held by slightly over two percent of all families. The wanton optimism of the 1920s led those with substantial savings to want to get richer quickly, and with little effort. The stock market bubble that materialized at the end of the decade seemed to justify the expectations that fortunes could be made overnight in real estate and the stock market. When investors acted on these expectations, the existing bubble became bigger and hence more fragile. To those familiar with the current state of the U.S. economy, the present situation presents itself as history repeating itself -contra Marx- yet again as farce.

FROM GREAT DEPRESSION TO GOLDEN AGE TO NEOLIBERALISM

The mounting instabilities of the economy of the 1920s led to a Depression that was unresponsive to the Roosevelt administration's elevenfold increase in government spending. When U.S. entry into World War II finally brought about a resumption of growth, there was nonetheless an abiding fear among economists that once War spending ceased, the forces and tendencies that had generated the Depression might reassert themselves and exceptionally slow growth could resume. Instead, much to the surprise of many economists, American capitalism began the most sustained period of expansion in its entire history. The period from 1947 to 1973 has come to be called "The Golden Age", and appears, on the face of it, to be a fatal anomaly with respect to secular stagnation theory. After all, if the causes of the Great Depression were structural, and the exogenous stimulus provided by the War was what produced a resumption of growth, how was it possible that the economy, in the absence of powerful exogenous stimulus, exhibited an historically unprecedented period of long-term growth?

I have suggested that sustained national (as opposed to intra-national regional) growth has been engendered by the emergence of transformative innovations, and it is this kind of consideration that I believe offers the most plausible explanation both of Golden-Age expansion and of the petering out of this growth period and the resumption of (global) stagnation. Five stimuli to long-term growth were set in motion after the War, and these were for the most part exogenous in the sense indicated, and essentially limited. I will construe these stimuli as forces counteracting the tendency to stagnation. Once most of these stimuli had spent their potential, stagnationist tendencies re-asserted themselves, and overinvestment became evident once again. With profitable industrial investment opportunities in short supply, the economic surplus was invested instead in what became a vast proliferation of financial instruments. When the bubble created by this process finally burst, it was replaced with a housing bubble. Indeed a variety of bubbles, in financial assets, in housing, in credit, and a substantially overvalued dollar now threaten an historically unparalleled reassertion of the tendency to stagnation. But let us look first at the counteracting forces.

After the War, and as a result of wartime rationing, Americans had accumulated a very large fund of savings, and the time had come when these could finally be spent. This accounted for an immediate surge of consumption spending which temporarily averted the onset of recession. But the effectiveness of this source of spending was soon spent. What truly impelled the sustained growth of the Golden Age was 1) the resumption of a vast expansion of the automobile industry, and with it the stimulation of the broad range of investment and employment opportunities discussed above in connection with automobilization; 2) large-scale economic aid to Europe, which stimulated export demand; 3) a nationwide process of suburbanization, which, in tandem with the expansion of auto production, expanded significantly the demand for the output of every other major industry; 4) the emergence of what president Eisenhower christened the "military-industrial" complex, which provided additional stimulus to the industries most vulnerable to economic instability, the industries of DI, the capital goods sector; and finally 5) the steady and growing expansion of business and especially consumer credit, which in recent years has assumed elephantine proportions.

Three of these factors bear the two most important features of epoch-making innovations. The expansion of the auto industry, suburbanization, and the ever-increasing expansion and extension of credit all absorb massive amounts of investible surplus, and transform the mode of life of the entire population. In so doing they impart a massive push to the macro-growth process. The first two of these have their initial direct effect on investment. The third factor, the growing importance of credit, affects both investment and consumption, but the long-term trend of the credit industry in the U.S., evident now in hindsight, is much more significant in relation to consumption. There is now in the States a credit bubble of menacing proportions, with consumers now in debt to the tune of about107% of disposable income. The Marshall Plan (number 2 above) affected mainly and directly investment and employment, with boosts to consumption following thereupon. By the mid- to late-1970s, the employment-generating capacity of the military had declined. Washington determined, in the light of the defeat in Vietnam, that hi-tech warfare, which is of course technology- rather than labor-intensive, must replace traditional forms of subversion and aggression, in order to render less likely a repeat of the "Vietnam Syndrome."

It is worth mentioning that the military-industrial complex and the vast extension of consumer credit were what constituted what Joan Robinson called "bastard Keynesianism" in the United States. Recall that Keynes had insisted that fiscal and monetary policy were necessary but not sufficient conditions for avoiding stagnation. The tendency to stagnation could be offset for the long run only if some key industries were nationalized, and income redistributed. Nationalization would allow the State to offset lagging demand by providing cheap inputs to the private sector, thereby enabling lower prices. And redistributing income would transfer liquidity from those who had more than they could either consume or invest to those whose consumption demand was severely constrained.

American policymakers saw it as their challenge to reap the effects of nationalization and redistribution without actually nationalizing industries or redistributing income. The solution was ingenious: the military-industrial complex would be the functional equivalent of state-owned industries, and would, as noted above, stimulate the demand for the output of those very firms that produced capital goods. And the extension of consumer credit would allow working people to mortgage future years' incomes and spend more without a corresponding increase in either their private or their social wage.

As mentioned earlier, these forces counteracting the tendency to stagnation were all inherently limited and temporary. By the late 1960s, the automobile industry had achieved maturity, suburbanization had been accomplished, and aid to Europe had not only long ended, but had apparently created for America the economic equivalent of Frankenstein's monster. Europe and Japan were now formidable threats to U.S. economic hegemony. (Germany, for example, has overtaken the U.S. as an exporter of capital goods.) These three colossal absorbers of surplus were now no longer in operation. In the mid-1960s social spending had overtaken military spending as the larger share of government spending. And credit had begun to function as a supplement to declining real income, rather than a further addition to growing income.

These combined developments rendered the post-War counters to the realization of the tendency to stagnation obsolete. The result was the onset of stagnation not only in the U.S. but also worldwide. In America there has been overcapacity in autos, steel, shipbuilding and petrochemicals since the mid- to late-1970s.

This general picture is widely reflected in the business press. Business Week noted that "..supply outpaces demand everywhere, sending prices lower, eroding corporate profits and increasing layoffs" (Jan. 25, 1999, p. 118). The former chairman of General Electric claimed that "..there is excess capacity in almost every industry" (The New York Times, Nov. 16, 1997, p. 3). The Wall Street Journal noted that "..from cashmere to blue jeans, silver jewelry to aluminum cans, the world is in oversupply" (Nov. 30, 1998, p. A17). And The Economist fretted that " the gap between sales and capacity is "at its widest since the 1930s" (Feb. 20, 1999, p. 15). At this time excess capacity in steel is exceeding twenty percent, in autos it has fluctuated around 30%. And these figures look good in comparison to unused capacity numbers in the "industries of the future" of the "New Economy", semiconductors and telecommunications. Not long ago, ninety-seven percent of fibre optic capacity was idle.

MAINSTREAM ECONOMICS AND STAGNATION THEORY

Let us begin with the indisputable fact that the regime of neoliberalism has brought with it a substantial decline in economic growth. The most widely cited study on this issue, produced for the IECD by Angus Maddison, shows that the annual rate of growth of real global GDP fell from 4.9% in 1950-1973 to 3 % in 1973-1998, a drop of 39 %. Theoretical commitments can guide perception: neoliberal economists either denied or ignored the decline in global growth because of their reliance on Say's Law, that it is not possible for total demand to fall below full-capacity supply over the long run. In my earlier remarks I offered an explanation of sluggish growth rates since 1973. Many orthodox economics have done something similar: they have offered explanations of the initial rise in excess capacity. But what has not been explained is why global supply did not eventually adjust itself to the slower rate of demand growth, with the result that in the mid-1970s the global economy would enter a period of sluggish expansion. And it is worth mentioning that even Keynesian macro-theory is inadequate in this regard. It assumes that slow growth in aggregate demand will result in a proportionate decline in the growth of aggregate supply through its effect upon investment and therefore productivity.

An adequate explanation of the sustained character of excess capacity can be constructed from insights from Schumpeter, Marx and the contemporary economist James Crotty. The analysis that follows should be understood within the framework of the version of secular stagnation theory sketched above.

Before the shift to neoliberal policies by Jimmy Carter, Reagan and Thatcher, the global economy was already subject to downward pressures on demand growth resulting from two oil price shocks and the restrictive macro policy imposed in response to oil-price induced inflation. These impediments to demand growth were exacerbated by neoliberal policies. In combination, these forces led to a sharp rise in excess capacity in globally competing industries. At the same time competitive pressures were further intensified by the reduction of the market power of national oligopolies caused by the removal of protectionist barriers to the free movement of goods and money across national boundaries. Accordingly, competitive pressures between nations rose dramatically. In this context, normal stagnationist tendencies operated to further constrain global demand growth and further reproduce industrial capacity faster than either neoclassical or Keynesian theory could comprehend.

The Achilles Heel of neoclassical theory with respect to its inability to account for the persistence of overcapacity during the neoliberal period is its account of competition. So-called "perfect competition" is alleged to lead to maximum efficiency and the elimination of excess capacity. This claim appears inconsistent with the history of real-world, pre- and post-oligopolistic competition. Textbook-like competition has led to periodic market gluts or overproduction crises, price wars, plummeting profits, unbearable debt burdens and violent labor relations. Neoclassical theory banishes these demons with the aid of two assumptions which appear designed explicitly to make them impossible. The first assumption claims that production cost per unit rises rapidly as output increases, and the second that exit from low-profit industries is free or costless. If these assumptions were indeed true, then pure competition could not be shown to have stagnation- or depression-inducing effects. But these assumptions are, I shall suggest, false.

I will begin with the least plausible of these two assumptions. It states that there is free or costless exit from low-profit industries. But productive assets are typically immobile or irreversible, i.e., they are not liquid, and this forces a sizeable loss in the value of a firm's capital should it choose to leave an unprofitable industry. Whether they are sold on a second-hand market or reallocated to a different industry, productive assets will lose substantial value. Capital flowing out of the aerospace industry has been found to sell for one third of its replacement cost. Insolvent telecom firms in the U.S. have sold their assets for 20 cents on the dollar. And isn't this what one would expect? For it is usually poor profit prospects and/or great excess capacity that heighten a firm's incentive to leave an industry. But it is precisely those circumstances which deeply depress the price of industry-specific assets on the second-hand market, since the supply of these assets grows even as the demand for them has collapsed.

Before I turn to the slightly more plausible (yet still false) assumption -that unit production cost rises dramatically as output increases- I will outline the corollary of neoclassical theory itself which neoclassical economists seek to evade by introducing this assumption. The theory tells us that pure competition will force price down until it covers marginal cost. Now if unit production cost remained constant irrespective of the output level, then marginal production cost and average production cost per unit would be equal. When perfect competition forces price to equal marginal cost, total revenue will be equal to total production cost. But in this case there will be no revenue left over either to pay the "fixed" cost of maintaining capital stock in the face of depreciation or obsolescence, or to pay interest and/or dividends to investors. Thus, perfect competition is seen to cause the representative firm to suffer, in each production period, a loss that is equal to fixed costs. Keeping in mind that most important global industries have huge fixed costs, no industry could long survive the consequences of intense competition.

We seem to have found a tendency to stagnation or complete system breakdown where we would least expect to find it - in neoclassical theory itself. But the theory claims to have a response to this embarrassment. It simply denies the claim that appears to entail the undesired consequence, namely the claim that unit production cost remains constant no matter what the output level. Armed now with the (false) assumption that unit production cost rises rapidly as production increases, the conclusion is drawn that marginal cost and price are greater than average unit production cost. Thus, in equilibrium, the gap between price and average production cost is sufficiently large to cover all fixed costs. Let competition be as fierce as you wish, the typical firm will not lose money. Voila!

I have claimed that each of the rescuing assumptions discussed above is false. What would realistic assumptions about marginal cost and the reversibility of invested capital look like? To answer this question we must recognize the distinctive character of the dominant industries of global trade and investment. These industries include steel, autos, aircraft, shipbuilding, petrochemicals, consumer durables, electronics, semiconductors and banking. Studies of this type of industry suggest that marginal cost does not typically rise with output, with the rare exception of cases when the industry is producing near full capacity output. Marginal cost behaves as we would expect in cases of economies of scale: it remains constant or declines as capacity utilization rises. It follows that if free competition forces price to equal marginal cost in these industries, we should count on an ensuing wave of bankruptcies. Here again we see that neoclassical theory, corrected for unrealistic assumptions, seems to commit us to conceptualize mature capitalism as subject to the law of an inherent tendency to stagnation or worse.

The issue I am focusing on here turns on the dynamics of unrestricted competition among oligopolies in the context of economies of scale. The importance of economies of scale underscores the crucial similarity of all the dominant industries, including the new information-technology and telecommunications (ITC) industries. I stress this point because influential neoclassical economists have wanted to claim a significant difference, with respect to overcapacity problems, between the ITC industries and the other dominant industries. For purposes of explaining the persistence of excess capacity under neoliberalism, we want to remember that as scale economies grow, marginal costs fall as fixed costs per unit rise. Thus, the greater the economies of scale, the more destructive becomes the marginal cost pricing required by intense competition. With this in mind, we can more easily see that 1) these dynamics in especially conspicuous operation in the ITC industries, and 2) that such differences as there are between ITC and the other dominant oligopolies are insignificant for the analysis of secular stagnation theory, and of capitalist growth in general.

The key issue right now, recall, is the highly destructive consequences of the tendency of free competition among dominant industries to force price to equal marginal cost. That this is the case is easier to see in the ITC sector than in the other dominant industries. This is because in ITC marginal cost is often close to zero. Producing another copy of software or adding another customer to eBay is virtually costless. This has led many mainstream economists to argue that ITC industries are exempt from the laws of the neoclassical theory of perfect competition. Since ITC firms have marginal costs much lower than their large fixed costs, the argument goes, the possession of at least temporary monopoly power is the only guarantee of an incentive to produce anything at all. Without monopoly pricing power prices will be competed down to marginal cost and fixed costs will be unable to be covered. Thus, the motor of the "new economy" is said to be the constant pursuit of monopoly power. But, contrary to the neoclassical claim, none of this distinguishes significantly between ITC and other key industries. The drive to monopoly power is characteristic of all large corporations in the present age.

As Paul Sweezy argued in his Marshall Lectures, the typical firm in an oligopolized industry strives to be a monopolist. Each firm does this individually, and they all do it collectively. Individual firms seek monopoly status through the sales effort, where the firm's product is put forth as the best in the industry and as different from all the others. Firms within the same industry seek to approach monopoly status by collusion with respect to pricing policy, especially by agreeing to refrain from cutthroat price competition. For reasons developed at length above, therefore, all dominant firms, whether old- or new-economy operations, will tend to achieve monopoly status and to be chronically saddled with excess capacity.

A SCANDALOUSLY BRIEF LOOK AT SLOW-GROWTH CAPITALISM

We are in the midst of another unparalleled period of historical capitalism. Since the onset of stagnation, the median wage in the States has not changed at all for the vast majority of wage workers. Over the past six quarters the gowth of wage income has been negative. A brief sketch of the state of the U.S. economy toward the end of last year highlights features whose most plausible explanation may lie in the fact of secular stagnation. If stagnation theory is accurate, what follows is precisely what we would expect to find. The current state of the U.S. and the global economy is best understood, I believe, against the background too briefly elaborated above. Here is a picture of the U.S. economy today. The key to a healthy economy is job- and income-creating investment in capital goods, which in turn generates a virtuous cycle of further growth in investment, jobs and income. Ominously, the investment, growth, employment and income pictures are unprecedentedly dismal.

Compared to cyclical recoveries between 1949 and 1973, recoveries during the neoliberal period have been weak. Indeed, one or two of the post-1973 upturns has been weaker than some downturns during the Golden Age. Since the stock market collapse of four years ago, the situation has worsened. Growth rates since 2000 have been half their previous average. Even this weak performance required historically unprecedented fiscal and monetary stimulus: 13 rate cuts, three tax cuts, massive government deficits and record growth in money and credit.

Official figures mask the economy's most serious problems. Growth figures are annualized by U.S. statisticians. Thus, the much-touted 7.1% growth rate in the third quarter of 2003 was the one that would emerge after twelve months if the current trend were to continue. The same growth rate would have been reported in the eurozone as 1.8%. This is an uncommonly weak performance.

Investment data are equally misleading. Since the mid-1990s the Bureau of Economic Analysis (BEA) has adjusted upward actual business dollar outlays on computers and related equipment to take into account quality improvements (faster processors, bigger hard drives, more memory). BEA calls this "hedonic adjustment." Accordingly, the BEA estimates that business high-tech investment quadrupled between 1996 and 2002, from $70.9 to $283.7. But in actual dollars spent, the increase was only from $70.9 billion to $74.2 billion, very low by historic standards. The high-tech boom was both greatly exaggerated and misleading. After all, neither profits nor wages are taken in "hedonically adjusted" dollars.

The difference between real and hedonic outlays explains what would otherwise be a paradoxical feature of the years 2000-2003: government was reporting big increases in high-tech investment, while manufacturers were bemoaning declining sales.

Hedonic pricing has accounted for a steadily rising percentage of all reported capital investment. But if we look at actual dollars spent, we find that since 1998 the growth rate of business fixed investment has actually been declining. Real capital investment has in fact not been this weak since the Great Depression.

The fudging of investment figures also obscures the sorry state of the jobs market. The Commerce Department's figures on nonresidential investment for the third and fourth quarters of 2003 reported increases of, respectively, 12.8 and 9.6%. A closer look reveals that the "adjusted" hi-tech sector is the only bright spot, with production and capacity rising, respectively, 24.6% and 11.1% over the past year. But hi-tech is not where significant jobs increases are found. Employment in hi-tech has declined steadily through the so-called "recovery" since its 2001 peak.

In non-hi-tech manufacturing, where investment figures are not adjusted, production from January 2003 to January 2004 rose only 0.9%, while capacity actually declined -0.2%. This represents a record nineteen-straight-month decline in mainline manufacturing capacity. Since it is mainline manufacturing which employs almost 95% of all manufacturing workers, it comes as no surprise that for the first time since the Great Depression the economy has gone more than three years without creating any jobs.

The jobs crisis is even worse than it appears. Here again statistical sleight-of-hand, this time by the Bureau of Labor Statistics (BLS), obscures economic reality. Based on data gathered employing the "net birth/death adjustment," BLS announced in April, 2004, that the long-awaited jobs recovery had finally arrived. Nonfarm payrolls had allegedly surged by a whopping 308,000 in March, 2004. The birth/death model uses business deaths to "impute" employment from business births. Thus, as more businesses fail, more new jobs are imputed to have materialized through business births. This improbable statistical artefact accounts for about half of the reported 308,000 March, 2004 payroll increase.

The birth/death model is based on statistics covering 1998-2002. This was a period of explosive telecom and dot.com startups, quite unlike today's flat economic landscape. Thus, two thirds of the 947,000 new jobs BLS "imputed" for March-May, 2004, were never actually counted by BLS and never reported by any firm.

BlS's household and establishment surveys tell a more sobering story. March employment by private industry actually fell by 175,000, and the number of self-employed workers declined by 288,000. Without the simultaneous increase of 439,000 government jobs, the March job announcement would have been a calamity. And both average weekly hours and total hours worked declined markedly, even as (according to the dubious birth/death findings) the work force increased. This is the first time in U.S. history that net job growth has been negative 26 months into a recovery.

The wage and salary picture has also set grim records. During the current recovery, wage and salary growth has actually been negative, at -0.6%, in contrast to the average increase of 7.2% characteristic of this point into each of the other eight post-War recoveries. In fact, median family income in the post-War period exhibits an ominous trend. From 1947 to 1967, real median family income rose by 75%. But since 1967, it has grown by only 30%.

Labor's losses have been capital's gain: since the peak of the last recovery, in the first quarter of 2001, corporate profits have risen 62.2%, compared to the average of 13.9% at the same point in the last eight recoveries. Never in American history has any recorded recovery had such a lopsided balance in the distribution of income gains between labor and capital.

Given the dismal investment, wage/salary and employment pictures, how has it been possible for consumption to have risen to 71% of GDP in the early nineties, from its prior post-War average of 66%? The answer is a growth rate of consumer debt never seen before in America. For the first time ever, in March 2001, overall debt levels (mortgage debt plus consumer debt, mainly credit card debt and car loans) rose above annual disposable income. And from 2001 to 2004 consumer debt rose from 101% to 116% of disposable income. In the first half of 2004, consumer borrowing has been at its highest ever. It has declined slightly in the meantime. So has consumer spending. Should Americans decide to significantly increase their saving and service debts, while lowering correspondingly their consumption expenditures, the global economy could experience a major disruption.

Up until very recently, consumers had stepped up their borrowing to compensate for slowing income growth. Thus, such growth as the U.S. has experienced in recent years has been almost entirely consumption- and debt-driven. More fundamentally, it has been bubble-driven, fueled principally by bubbles in home values and credit.

Since the collapse of stock market/hi-tech bubbles in 2001, the illusory "wealth effect" has been sustained, and consumer spending thereby encouraged, by another bubble, the enormous inflation of house prices. The biggest increase in household debt came from home mortgage debt, especially home mortgage refinancing. With mortgage rates low and home prices rising, households' home equity ballooned. Bloated home equity then provided rising collateral to underwrite still more borrowing.

What makes this especially problematic is that over the last ten years, the average family has suffered under large increases in health premiums, housing costs, tuition fees and child care costs. As a result, households' and individuals' margin of protection against insolvency has dramatically declined. Filings for personal bankruptcy are approaching a record high.

There are indications that these weaknesses and imbalances in the economy are reaching a critical mass. The mortgage refi boom has fizzled, and consumer spending is beginning to decline. Two years ago the Fed's quarterly Beige Book reported a disturbing shift in the composition of credit spending: more and more families are using their credit cards to finance spending on essentials, such as food and energy.

It is no exaggeration to say that both the U.S. economy and the global economy are hugely dependent on the American consumer's increasing willingness to spend more than (s)he makes. (Imported goods have been a rising proportion of all goods purchased here.) Thus, a decline in U.S. consumer spending portends further declines in investment, jobs and income. From January to July of 2004, consumer spending rose at an annual rate of 2.8%, down from 3.3% in 2003 and 3.1 % in 2002. For perspective, during the boom years 1999-2000, growth rates were 5.1% and 4.7%.

Spending on consumer durables is the most significant indicator of healthy growth, and the drastically lower spending in this area is cause for alarm: spending for consumer durables was down to $23.5 billion in the first seven months of this year, in contrast to $71 billion on 2003 and $58 billion in 2002.

Should consumer spending continue to decline, the economy faces the genuine likelihood of a severe recession. Of course not a single American politician addresses this issue.

What is required is a shift from bubble-, debt-, and consumption-driven growth to investment- and income-driven growth. This in turn necessitates a decline in Americas principal export, jobs. Domestic job growth, a higher minimum wage, tax cuts aimed predominantly at low- and middle-income families, a sharp reduction in defense spending and a redirection of these funds to long-neglected and pressing social needs such as health care reform, the provision of universal pre-school, and across-the-board repair and upgrading of America's deteriorated infrastructure of roads, highways,tunnels and bridges, all these should be at the forefront of a Democratic administration's agenda. The restoration of infrastructure is especially labor intensive, and would generate an enormous number of productive jobs. And as a national project spearheaded by government initiative, government would emerge as a major employer.

All this si entirely incompatible with the overwhelming neoliberal bent of even the most "liberal" political leaders. It was after all Bill Clinton who urinated on the grave of Franklin Roosevelt when he proclaimed "the end of welfare as we know it".

As unfashionable as it is to suggest such a thing at a conference of economists, the only hope for the world's majority seems to be the revival of the kinds of mass movements witnessed here in May of 1968, and throughout the world during the 1960s. And time may be short.

------------------------------

Alan Nasser is Professor emeritus of Political Economy and Philosophy at The Evergreen State College. His book, The “New Normal”: Persistent Austerity, Declining Democracy and the Globalization of Resistance will be published by Pluto Press in 2013. If you would like to be notified when the book is released, please send a request to nassera@evergreen.edu

Thomas Palley » Blog Archive » Explaining Stagnation Why it Matters

John Bellamy Foster and Fred Magdoff clearly identify stagnation in their 2009 book The Great Financial Crisis: Causes and Consequences (HERE). They conclude with a section titled “Back to the real economy: the stagnation problem” and they write:

“It was the reality of economic stagnation beginning in the 1970s, as heterodox economists Ricardo Belliofiore and Joseph Halevi have recently emphasized, that led to the emergence of “the new financialized capitalist regime,” a kind of “paradoxical financial Keynesianiasm” whereby demand in the economy was stimulated primarily “thanks to asset-bubbles” (Foster and Magdoff, p.129).”

My own 2009 New America Foundation report, “America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession”, concluded (HERE):

“The bottom line is macroeconomic failure rooted in America’s flawed economic paradigm is the ultimate cause of the financial crisis and Great Recession…. Now, there is a grave danger that policymakers only focus on financial market reform and ignore reform of America’s flawed economic paradigm. In that event, though the economy may stabilize, it will likely be unable to escape the pull of economic stagnation. That is because stagnation is the logical next stage of the existing paradigm.”

That report became a core chapter in my 2012 book, From Financial Crisis to Stagnation, the blurb for which reads (HERE):

“The U.S. economy today is confronted with the prospect of extended stagnation. This book explores why…. Financial deregulation and the house price bubble kept the economy going by making ever more credit available. As the economy cannibalized itself by undercutting income distribution and accumulating debt, it needed larger speculative bubbles to grow. That process ended when the housing bubble burst. The earlier post–World War II economic model based on rising middle-class incomes has been dismantled, while the new neoliberal model has imploded. Absent a change of policy paradigm, the logical next step is stagnation. The political challenge we face now is how to achieve paradigm change.”

The big analytical difference between Foster and Magdoff and myself is that they see stagnation as inherent to capitalism whereas I see it as the product of neoliberal economic policy. Foster and Magdoff partake of the Baran-Sweezy tradition that recommends deeper socialist transformation. I use a structural Keynesian framework that recommends reconstructing the income and demand generation mechanism via policies that include rebuilding worker bargaining power, reforming globalization, and reining in corporations and financial markets.

Larry Summers’ story of serial bubbles delaying stagnation has substantial similarities with both accounts but he avoids blaming either capitalism or neoliberalism. That is hardly surprising as Summers has been a chief architect of the neoliberal system and remains committed to it, though he now wants to soften its impact. Instead, he appeals to the black box of “secular stagnation” as ultimate cause and suggests fiscal policies that would ameliorate the demand shortage problem. However, those policies would not remedy the root cause of stagnation as they leave the economic architecture unchanged.

Though Summers and Krugman are relative late-comers to the stagnation hypothesis, they have still done a great public service by drawing attention to it. Now that stagnation has been identified, the real debate can begin.

The questions are what caused stagnation and what must be done to restore shared prosperity? There is no guarantee we will answer those questions correctly (my prior is mainstream economists will continue their track record of getting it wrong). But it is absolutely certain we will not get the right answer if we do not ask the right question. So thank you Larry Summers and Paul Krugman for putting stagnation on the table. Let the debate begin.

This entry was posted on Monday, February 24th, 2014 at 12:53 pm and is filed under Economics, U.S. Policy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Summers makes the idea of secular stagnation mainstream

Larry Summers (“Why Stagnation May Prove To Be The New Normal,” The Financial Times, December 15, 2013)  suggested the current "lack of demand" is not anomaly but a feature of the current sociao-economic system.  He suggested that we have been in the throes of stagnation for a long while, but that has been obscured by years of serial asset price bubbles. His article produced great public debate and marked the point when the idea became mainstream. The debate began with Summers’ speech to the IMF’s Fourteenth Annual Research Conference in Honor of Stanley Fisher. Summers noted that the panic of 2008 was “an event that in the fall of 2008 and winter of 2009 … appeared, by most of the statistics—GDP, industrial production, employment, world trade, the stock market—worse than the fall of 1929 and the winter of 1930. …”

Tha means the major defeat for “stabilization policies” that were supposed to smooth the capitalist industrial cycle and abolish panics. And the problem preceeds the 2008 panic itself.

The highly misleading unemployment rate calculated by the U.S. Department of Labor notwithstanding, there has been a massive growth in long-term unemployment in the U.S. in the wake of the crisis, as shown by the declining percentage of the U.S. population actually working.

The current situation also refute the key tenet of neoclassical economy (which is pseudo-religious doctrine, so that only increase fanatic devotion of its well-paid adherents). Neoclassical economists insisted that since a “free market economy” naturally tends toward an equilibrium with full employment of both workers and machines, the economy should should quickly return to “full employment” after a recession. This is not the case. See also Secular Stagnation Lawrence H. Summers

There were several uncessful attempts to explaint his situation from neoclassical positions. In Secular Stagnation, Coalmines, Bubbles, and Larry Summers - NYTimes.com Paul Krugman  emphasized the liquidity trap – zero lower bound to interest rates which supposedly prevents spending from reaching a level sufficient for full employment.

Larry’s formulation of our current economic situation is the same as my own. Although he doesn’t use the words “liquidity trap”, he works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound (even if you think central banks could be doing more), and that this corresponds to a situation in which the “natural” rate of interest – the rate at which desired savings and desired investment would be equal at full employment – is negative.

And as he also notes, in this situation the normal rules of economic policy don’t apply. As I like to put it, virtue becomes vice and prudence becomes folly. Saving hurts the economy – it even hurts investment, thanks to the paradox of thrift. Fixating on debt and deficits deepens the depression. And so on down the line.

This is the kind of environment in which Keynes’s hypothetical policy of burying currency in coalmines and letting the private sector dig it up – or my version, which involves faking a threat from nonexistent space aliens – becomes a good thing; spending is good, and while productive spending is best, unproductive spending is still better than nothing.

Larry also indirectly states an important corollary: this isn’t just true of public spending. Private spending that is wholly or partially wasteful is also a good thing, unless it somehow stores up trouble for the future. That last bit is an important qualification. But suppose that U.S. corporations, which are currently sitting on a huge hoard of cash, were somehow to become convinced that it would be a great idea to fit out all their employees as cyborgs, with Google Glass and smart wristwatches everywhere. And suppose that three years later they realized that there wasn’t really much payoff to all that spending. Nonetheless, the resulting investment boom would have given us several years of much higher employment, with no real waste, since the resources employed would otherwise have been idle.

OK, this is still mostly standard, although a lot of people hate, just hate, this kind of logic – they want economics to be a morality play, and they don’t care how many people have to suffer in the process.

But now comes the radical part of Larry’s presentation: his suggestion that this may not be a temporary state of affairs.

2. An economy that needs bubbles?

We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.

So you might be tempted to say that monetary policy has consistently been too loose. After all, haven’t low interest rates been encouraging repeated bubbles?

But as Larry emphasizes, there’s a big problem with the claim that monetary policy has been too loose: where’s the inflation? Where has the overheated economy been visible?

So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.

One way to quantify this is, I think, to look at household debt. Here’s the ratio of household debt to GDP since the 50s:

There was a sharp increase in the ratio after World War II, but from a low base, as families moved to the suburbs and all that. Then there were about 25 years of rough stability, from 1960 to around 1985. After that, however, household debt rose rapidly and inexorably, until the crisis struck.

So with all that household borrowing, you might have expected the period 1985-2007 to be one of strong inflationary pressure, high interest rates, or both. In fact, you see neither – this was the era of the Great Moderation, a time of low inflation and generally low interest rates. Without all that increase in household debt, interest rates would presumably have to have been considerably lower – maybe negative. In other words, you can argue that our economy has been trying to get into the liquidity trap for a number of years, and that it only avoided the trap for a while thanks to successive bubbles.

And if that’s how you see things, when looking forward you have to regard the liquidity trap not as an exceptional state of affairs but as the new normal.

3. Secular stagnation?

How did this happen? Larry explicitly invokes the notion of secular stagnation, associated in particular with Alvin Hansen (pdf).  He doesn’t say why this might be happening to us now, but it’s not hard to think of possible reasons.

Back in the day, Hansen stressed demographic factors: he thought slowing population growth would mean low investment demand. Then came the baby boom. But this time around the slowdown is here, and looks real.

Think of it this way: during the period 1960-85, when the U.S. economy seemed able to achieve full employment without bubbles, our labor force grew an average 2.1 percent annually. In part this reflected the maturing of the baby boomers, in part the move of women into the labor force.

This growth made sustaining investment fairly easy: the business of providing Americans with new houses, new offices, and so on easily absorbed a fairly high fraction of GDP.

Now look forward. The Census projects that the population aged 18 to 64 will grow at an annual rate of only 0.2 percent between 2015 and 2025. Unless labor force participation not only stops declining but starts rising rapidly again, this means a slower-growth economy, and thanks to the accelerator effect, lower investment demand.

By the way, in a Samuelson consumption-loan model, the natural rate of interest equals the rate of population growth. Reality is a lot more complicated than that, but I don’t think it’s foolish to guess that the decline in population growth has reduced the natural real rate of interest by something like an equal amount (and to note that Japan’s shrinking working-age population is probably a major factor in its secular stagnation.)

There may be other factors – a Bob Gordonesque decline in innovation, etc.. The point is that it’s not hard to think of reasons why the liquidity trap could be a lot more persistent than anyone currently wants to admit.

4. Destructive virtue

If you take a secular stagnation view seriously, it has some radical implications – and Larry goes there.

Currently, even policymakers who are willing to concede that the liquidity trap makes nonsense of conventional notions of policy prudence are busy preparing for the time when normality returns. This means that they are preoccupied with the idea that they must act now to head off future crises. Yet this crisis isn’t over – and as Larry says, “Most of what would be done under the aegis of preventing a future crisis would be counterproductive.”

He goes on to say that the officially respectable policy agenda involves “doing less with monetary policy than was done before and doing less with fiscal policy than was done before,” even though the economy remains deeply depressed. And he says, a bit fuzzily but bravely all the same, that even improved financial regulation is not necessarily a good thing – that it may discourage irresponsible lending and borrowing at a time when more spending of any kind is good for the economy.

Amazing stuff – and if we really are looking at secular stagnation, he’s right.

Of course, the underlying problem in all of this is simply that real interest rates are too high. But, you say, they’re negative – zero nominal rates minus at least some expected inflation. To which the answer is, so? If the market wants a strongly negative real interest rate, we’ll have persistent problems until we find a way to deliver such a rate.

One way to get there would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom – whether it’s a bubble or driven by expansionary fiscal policy – to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations.

Any such suggestions are, of course, met with outrage. How dare anyone suggest that virtuous individuals, people who are prudent and save for the future, face expropriation? How can you suggest steadily eroding their savings either through inflation or through negative interest rates? It’s tyranny!

But in a liquidity trap saving may be a personal virtue, but it’s a social vice. And in an economy facing secular stagnation, this isn’t just a temporary state of affairs, it’s the norm. Assuring people that they can get a positive rate of return on safe assets means promising them something the market doesn’t want to deliver – it’s like farm price supports, except for rentiers.

Oh, and one last point. If we’re going to have persistently negative real interest rates along with at least somewhat positive overall economic growth, the panic over public debt looks even more foolish than people like me have been saying: servicing the debt in the sense of stabilizing the ratio of debt to GDP has no cost, in fact negative cost.

I could go on, but by now I hope you’ve gotten the point. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right.

Supplement 1: Of Flying Cars and the Declining Rate of Profit (reprint)

Of Flying Cars and the Declining Rate of Profit - The Baffler

David Graeber

A secret question hovers over us, a sense of disappointment, a broken promise we were given as children about what our adult world was supposed to be like. I am referring not to the standard false promises that children are always given (about how the world is fair, or how those who work hard shall be rewarded), but to a particular generational promise—given to those who were children in the fifties, sixties, seventies, or eighties—one that was never quite articulated as a promise but rather as a set of assumptions about what our adult world would be like. And since it was never quite promised, now that it has failed to come true, we’re left confused: indignant, but at the same time, embarrassed at our own indignation, ashamed we were ever so silly to believe our elders to begin with.

Where, in short, are the flying cars? Where are the force fields, tractor beams, teleportation pods, antigravity sleds, tricorders, immortality drugs, colonies on Mars, and all the other technological wonders any child growing up in the mid-to-late twentieth century assumed would exist by now? Even those inventions that seemed ready to emerge—like cloning or cryogenics—ended up betraying their lofty promises. What happened to them?

We are well informed of the wonders of computers, as if this is some sort of unanticipated compensation, but, in fact, we haven’t moved even computing to the point of progress that people in the fifties expected we’d have reached by now. We don’t have computers we can have an interesting conversation with, or robots that can walk our dogs or take our clothes to the Laundromat.

As someone who was eight years old at the time of the Apollo moon landing, I remember calculating that I would be thirty-nine in the magic year 2000 and wondering what the world would be like. Did I expect I would be living in such a world of wonders? Of course. Everyone did. Do I feel cheated now? It seemed unlikely that I’d live to see all the things I was reading about in science fiction, but it never occurred to me that I wouldn’t see any of them.

At the turn of the millennium, I was expecting an outpouring of reflections on why we had gotten the future of technology so wrong. Instead, just about all the authoritative voices—both Left and Right—began their reflections from the assumption that we do live in an unprecedented new technological utopia of one sort or another.

The common way of dealing with the uneasy sense that this might not be so is to brush it aside, to insist all the progress that could have happened has happened and to treat anything more as silly. “Oh, you mean all that Jetsons stuff?” I’m asked—as if to say, but that was just for children! Surely, as grown-ups, we understand The Jetsons offered as accurate a view of the future as The Flintstones offered of the Stone Age.

Surely, as grown-ups, we understand The Jetsons offered as accurate a view of the future as The Flintstones did of the Stone Age.

Even in the seventies and eighties, in fact, sober sources such as National Geographic and the Smithsonian were informing children of imminent space stations and expeditions to Mars. Creators of science fiction movies used to come up with concrete dates, often no more than a generation in the future, in which to place their futuristic fantasies. In 1968, Stanley Kubrick felt that a moviegoing audience would find it perfectly natural to assume that only thirty-three years later, in 2001, we would have commercial moon flights, city-like space stations, and computers with human personalities maintaining astronauts in suspended animation while traveling to Jupiter. Video telephony is just about the only new technology from that particular movie that has appeared—and it was technically possible when the movie was showing. 2001 can be seen as a curio, but what about Star Trek? The Star Trek mythos was set in the sixties, too, but the show kept getting revived, leaving audiences for Star Trek Voyager in, say, 2005, to try to figure out what to make of the fact that according to the logic of the program, the world was supposed to be recovering from fighting off the rule of genetically engineered supermen in the Eugenics Wars of the nineties.

By 1989, when the creators of Back to the Future II were dutifully placing flying cars and anti-gravity hoverboards in the hands of ordinary teenagers in the year 2015, it wasn’t clear if this was meant as a prediction or a joke.

The usual move in science fiction is to remain vague about the dates, so as to render “the future” a zone of pure fantasy, no different than Middle Earth or Narnia, or like Star Wars, “a long time ago in a galaxy far, far away.” As a result, our science fiction future is, most often, not a future at all, but more like an alternative dimension, a dream-time, a technological Elsewhere, existing in days to come in the same sense that elves and dragon-slayers existed in the past—another screen for the displacement of moral dramas and mythic fantasies into the dead ends of consumer pleasure.

image

Might the cultural sensibility that came to be referred to as postmodernism best be seen as a prolonged meditation on all the technological changes that never happened? The question struck me as I watched one of the recent Star Wars movies. The movie was terrible, but I couldn’t help but feel impressed by the quality of the special effects. Recalling the clumsy special effects typical of fifties sci-fi films, I kept thinking how impressed a fifties audience would have been if they’d known what we could do by now—only to realize, “Actually, no. They wouldn’t be impressed at all, would they? They thought we’d be doing this kind of thing by now. Not just figuring out more sophisticated ways to simulate it.”

That last word—simulate—is key. The technologies that have advanced since the seventies are mainly either medical technologies or information technologies—largely, technologies of simulation. They are technologies of what Jean Baudrillard and Umberto Eco called the “hyper-real,” the ability to make imitations that are more realistic than originals. The postmodern sensibility, the feeling that we had somehow broken into an unprecedented new historical period in which we understood that there is nothing new; that grand historical narratives of progress and liberation were meaningless; that everything now was simulation, ironic repetition, fragmentation, and pastiche—all this makes sense in a technological environment in which the only breakthroughs were those that made it easier to create, transfer, and rearrange virtual projections of things that either already existed, or, we came to realize, never would. Surely, if we were vacationing in geodesic domes on Mars or toting about pocket-size nuclear fusion plants or telekinetic mind-reading devices no one would ever have been talking like this. The postmodern moment was a desperate way to take what could otherwise only be felt as a bitter disappointment and to dress it up as something epochal, exciting, and new.

In the earliest formulations, which largely came out of the Marxist tradition, a lot of this technological background was acknowledged. Fredric Jameson’s “Postmodernism, or the Cultural Logic of Late Capitalism” proposed the term “postmodernism” to refer to the cultural logic appropriate to a new, technological phase of capitalism, one that had been heralded by Marxist economist Ernest Mandel as early as 1972. Mandel had argued that humanity stood at the verge of a “third technological revolution,” as profound as the Agricultural or Industrial Revolution, in which computers, robots, new energy sources, and new information technologies would replace industrial labor—the “end of work” as it soon came to be called—reducing us all to designers and computer technicians coming up with crazy visions that cybernetic factories would produce.

End of work arguments were popular in the late seventies and early eighties as social thinkers pondered what would happen to the traditional working-class-led popular struggle once the working class no longer existed. (The answer: it would turn into identity politics.) Jameson thought of himself as exploring the forms of consciousness and historical sensibilities likely to emerge from this new age.

What happened, instead, is that the spread of information technologies and new ways of organizing transport—the containerization of shipping, for example—allowed those same industrial jobs to be outsourced to East Asia, Latin America, and other countries where the availability of cheap labor allowed manufacturers to employ much less technologically sophisticated production-line techniques than they would have been obliged to employ at home.

From the perspective of those living in Europe, North America, and Japan, the results did seem to be much as predicted. Smokestack industries did disappear; jobs came to be divided between a lower stratum of service workers and an upper stratum sitting in antiseptic bubbles playing with computers. But below it all lay an uneasy awareness that the postwork civilization was a giant fraud. Our carefully engineered high-tech sneakers were not being produced by intelligent cyborgs or self-replicating molecular nanotechnology; they were being made on the equivalent of old-fashioned Singer sewing machines, by the daughters of Mexican and Indonesian farmers who, as the result of WTO or NAFTA–sponsored trade deals, had been ousted from their ancestral lands. It was a guilty awareness that lay beneath the postmodern sensibility and its celebration of the endless play of images and surfaces.

image

Why did the projected explosion of technological growth everyone was expecting—the moon bases, the robot factories—fail to happen? There are two possibilities. Either our expectations about the pace of technological change were unrealistic (in which case, we need to know why so many intelligent people believed they were not) or our expectations were not unrealistic (in which case, we need to know what happened to derail so many credible ideas and prospects).

Most social analysts choose the first explanation and trace the problem to the Cold War space race. Why, these analysts wonder, did both the United States and the Soviet Union become so obsessed with the idea of manned space travel? It was never an efficient way to engage in scientific research. And it encouraged unrealistic ideas of what the human future would be like.

Could the answer be that both the United States and the Soviet Union had been, in the century before, societies of pioneers, one expanding across the Western frontier, the other across Siberia? Didn’t they share a commitment to the myth of a limitless, expansive future, of human colonization of vast empty spaces, that helped convince the leaders of both superpowers they had entered into a “space age” in which they were battling over control of the future itself? All sorts of myths were at play here, no doubt, but that proves nothing about the feasibility of the project.

Some of those science fiction fantasies (at this point we can’t know which ones) could have been brought into being. For earlier generations, many science fiction fantasies had been brought into being. Those who grew up at the turn of the century reading Jules Verne or H.G. Wells imagined the world of, say, 1960 with flying machines, rocket ships, submarines, radio, and television—and that was pretty much what they got. If it wasn’t unrealistic in 1900 to dream of men traveling to the moon, then why was it unrealistic in the sixties to dream of jet-packs and robot laundry-maids?

In fact, even as those dreams were being outlined, the material base for their achievement was beginning to be whittled away. There is reason to believe that even by the fifties and sixties, the pace of technological innovation was slowing down from the heady pace of the first half of the century. There was a last spate in the fifties when microwave ovens (1954), the Pill (1957), and lasers (1958) all appeared in rapid succession. But since then, technological advances have taken the form of clever new ways of combining existing technologies (as in the space race) and new ways of putting existing technologies to consumer use (the most famous example is television, invented in 1926, but mass produced only after the war.) Yet, in part because the space race gave everyone the impression that remarkable advances were happening, the popular impression during the sixties was that the pace of technological change was speeding up in terrifying, uncontrollable ways.

Alvin Toffler’s 1970 best seller Future Shock argued that almost all the social problems of the sixties could be traced back to the increasing pace of technological change. The endless outpouring of scientific breakthroughs transformed the grounds of daily existence, and left Americans without any clear idea of what normal life was. Just consider the family, where not just the Pill, but also the prospect of in vitro fertilization, test tube babies, and sperm and egg donation were about to make the idea of motherhood obsolete.

Humans were not psychologically prepared for the pace of change, Toffler wrote. He coined a term for the phenomenon: “accelerative thrust.” It had begun with the Industrial Revolution, but by roughly 1850, the effect had become unmistakable. Not only was everything around us changing, but most of it—human knowledge, the size of the population, industrial growth, energy use—was changing exponentially. The only solution, Toffler argued, was to begin some kind of control over the process, to create institutions that would assess emerging technologies and their likely effects, to ban technologies likely to be too socially disruptive, and to guide development in the direction of social harmony.

While many of the historical trends Toffler describes are accurate, the book appeared when most of these exponential trends halted. It was right around 1970 when the increase in the number of scientific papers published in the world—a figure that had doubled every fifteen years since, roughly, 1685—began leveling off. The same was true of books and patents.

Toffler’s use of acceleration was particularly unfortunate. For most of human history, the top speed at which human beings could travel had been around 25 miles per hour. By 1900 it had increased to 100 miles per hour, and for the next seventy years it did seem to be increasing exponentially. By the time Toffler was writing, in 1970, the record for the fastest speed at which any human had traveled stood at roughly 25,000 mph, achieved by the crew of Apollo 10 in 1969, just one year before. At such an exponential rate, it must have seemed reasonable to assume that within a matter of decades, humanity would be exploring other solar systems.

Since 1970, no further increase has occurred. The record for the fastest a human has ever traveled remains with the crew of Apollo 10. True, the commercial airliner Concorde, which first flew in 1969, reached a maximum speed of 1,400 mph. And the Soviet Tupolev Tu-144, which flew first, reached an even faster speed of 1,553 mph. But those speeds not only have failed to increase; they have decreased since the Tupolev Tu-144 was cancelled and the Concorde was abandoned.

None of this stopped Toffler’s own career. He kept retooling his analysis to come up with new spectacular pronouncements. In 1980, he produced The Third Wave, its argument lifted from Ernest Mandel’s “third technological revolution”—except that while Mandel thought these changes would spell the end of capitalism, Toffler assumed capitalism was eternal. By 1990, Toffler was the personal intellectual guru to Republican congressman Newt Gingrich, who claimed that his 1994 “Contract With America” was inspired, in part, by the understanding that the United States needed to move from an antiquated, materialist, industrial mind-set to a new, free-market, information age, Third Wave civilization.

There are all sorts of ironies in this connection. One of Toffler’s greatest achievements was inspiring the government to create an Office of Technology Assessment (OTA). One of Gingrich’s first acts on winning control of the House of Representatives in 1995 was defunding the OTA as an example of useless government extravagance. Still, there’s no contradiction here. By this time, Toffler had long since given up on influencing policy by appealing to the general public; he was making a living largely by giving seminars to CEOs and corporate think tanks. His insights had been privatized.

Gingrich liked to call himself a “conservative futurologist.” This, too, might seem oxymoronic; but, in fact, Toffler’s own conception of futurology was never progressive. Progress was always presented as a problem that needed to be solved.

Toffler might best be seen as a lightweight version of the nineteenth-century social theorist Auguste Comte, who believed that he was standing on the brink of a new age—in his case, the Industrial Age—driven by the inexorable progress of technology, and that the social cataclysms of his times were caused by the social system not adjusting. The older feudal order had developed Catholic theology, a way of thinking about man’s place in the cosmos perfectly suited to the social system of the time, as well as an institutional structure, the Church, that conveyed and enforced such ideas in a way that could give everyone a sense of meaning and belonging. The Industrial Age had developed its own system of ideas—science—but scientists had not succeeded in creating anything like the Catholic Church. Comte concluded that we needed to develop a new science, which he dubbed “sociology,” and said that sociologists should play the role of priests in a new Religion of Society that would inspire everyone with a love of order, community, work discipline, and family values. Toffler was less ambitious; his futurologists were not supposed to play the role of priests.

Gingrich had a second guru, a libertarian theologian named George Gilder, and Gilder, like Toffler, was obsessed with technology and social change. In an odd way, Gilder was more optimistic. Embracing a radical version of Mandel’s Third Wave argument, he insisted that what we were seeing with the rise of computers was an “overthrow of matter.” The old, materialist Industrial Society, where value came from physical labor, was giving way to an Information Age where value emerges directly from the minds of entrepreneurs, just as the world had originally appeared ex nihilo from the mind of God, just as money, in a proper supply-side economy, emerged ex nihilo from the Federal Reserve and into the hands of value-creating capitalists. Supply-side economic policies, Gilder concluded, would ensure that investment would continue to steer away from old government boondoggles like the space program and toward more productive information and medical technologies.

But if there was a conscious, or semi-conscious, move away from investment in research that might lead to better rockets and robots, and toward research that would lead to such things as laser printers and CAT scans, it had begun well before Toffler’s Future Shock (1970) and Gilder’s Wealth and Poverty (1981). What their success shows is that the issues they raised—that existing patterns of technological development would lead to social upheaval, and that we needed to guide technological development in directions that did not challenge existing structures of authority—echoed in the corridors of power. Statesmen and captains of industry had been thinking about such questions for some time.

image

Industrial capitalism has fostered an extremely rapid rate of scientific advance and technological innovation—one with no parallel in previous human history. Even capitalism’s greatest detractors, Karl Marx and Friedrich Engels, celebrated its unleashing of the “productive forces.” Marx and Engels also believed that capitalism’s continual need to revolutionize the means of industrial production would be its undoing. Marx argued that, for certain technical reasons, value—and therefore profits—can be extracted only from human labor. Competition forces factory owners to mechanize production, to reduce labor costs, but while this is to the short-term advantage of the firm, mechanization’s effect is to drive down the general rate of profit.

For 150 years, economists have debated whether all this is true. But if it is true, then the decision by industrialists not to pour research funds into the invention of the robot factories that everyone was anticipating in the sixties, and instead to relocate their factories to labor-intensive, low-tech facilities in China or the Global South makes a great deal of sense.

As I’ve noted, there’s reason to believe the pace of technological innovation in productive processes—the factories themselves—began to slow in the fifties and sixties, but the side effects of America’s rivalry with the Soviet Union made innovation appear to accelerate. There was the awesome space race, alongside frenetic efforts by U.S. industrial planners to apply existing technologies to consumer purposes, to create an optimistic sense of burgeoning prosperity and guaranteed progress that would undercut the appeal of working-class politics.

These moves were reactions to initiatives from the Soviet Union. But this part of the history is difficult for Americans to remember, because at the end of the Cold War, the popular image of the Soviet Union switched from terrifyingly bold rival to pathetic basket case—the exemplar of a society that could not work. Back in the fifties, in fact, many United States planners suspected the Soviet system worked better. Certainly, they recalled the fact that in the thirties, while the United States had been mired in depression, the Soviet Union had maintained almost unprecedented economic growth rates of 10 percent to 12 percent a year—an achievement quickly followed by the production of tank armies that defeated Nazi Germany, then by the launching of Sputnik in 1957, then by the first manned spacecraft, the Vostok, in 1961.

It’s often said the Apollo moon landing was the greatest historical achievement of Soviet communism. Surely, the United States would never have contemplated such a feat had it not been for the cosmic ambitions of the Soviet Politburo. We are used to thinking of the Politburo as a group of unimaginative gray bureaucrats, but they were bureaucrats who dared to dream astounding dreams. The dream of world revolution was only the first. It’s also true that most of them—changing the course of mighty rivers, this sort of thing—either turned out to be ecologically and socially disastrous, or, like Joseph Stalin’s one-hundred-story Palace of the Soviets or a twenty-story statue of Vladimir Lenin, never got off the ground.

After the initial successes of the Soviet space program, few of these schemes were realized, but the leadership never ceased coming up with new ones. Even in the eighties, when the United States was attempting its own last, grandiose scheme, Star Wars, the Soviets were planning to transform the world through creative uses of technology. Few outside of Russia remember most of these projects, but great resources were devoted to them. It’s also worth noting that unlike the Star Wars project, which was designed to sink the Soviet Union, most were not military in nature: as, for instance, the attempt to solve the world hunger problem by harvesting lakes and oceans with an edible bacteria called spirulina, or to solve the world energy problem by launching hundreds of gigantic solar-power platforms into orbit and beaming the electricity back to earth.

The American victory in the space race meant that, after 1968, U.S. planners no longer took the competition seriously. As a result, the mythology of the final frontier was maintained, even as the direction of research and development shifted away from anything that might lead to the creation of Mars bases and robot factories.

The standard line is that all this was a result of the triumph of the market. The Apollo program was a Big Government project, Soviet-inspired in the sense that it required a national effort coordinated by government bureaucracies. As soon as the Soviet threat drew safely out of the picture, though, capitalism was free to revert to lines of technological development more in accord with its normal, decentralized, free-market imperatives—such as privately funded research into marketable products like personal computers. This is the line that men like Toffler and Gilder took in the late seventies and early eighties.

In fact, the United States never did abandon gigantic, government-controlled schemes of technological development. Mainly, they just shifted to military research—and not just to Soviet-scale schemes like Star Wars, but to weapons projects, research in communications and surveillance technologies, and similar security-related concerns. To some degree this had always been true: the billions poured into missile research had always dwarfed the sums allocated to the space program. Yet by the seventies, even basic research came to be conducted following military priorities. One reason we don’t have robot factories is because roughly 95 percent of robotics research funding has been channeled through the Pentagon, which is more interested in developing unmanned drones than in automating paper mills.

A case could be made that even the shift to research and development on information technologies and medicine was not so much a reorientation toward market-driven consumer imperatives, but part of an all-out effort to follow the technological humbling of the Soviet Union with total victory in the global class war—seen simultaneously as the imposition of absolute U.S. military dominance overseas, and, at home, the utter rout of social movements.

For the technologies that did emerge proved most conducive to surveillance, work discipline, and social control. Computers have opened up certain spaces of freedom, as we’re constantly reminded, but instead of leading to the workless utopia Abbie Hoffman imagined, they have been employed in such a way as to produce the opposite effect. They have enabled a financialization of capital that has driven workers desperately into debt, and, at the same time, provided the means by which employers have created “flexible” work regimes that have both destroyed traditional job security and increased working hours for almost everyone. Along with the export of factory jobs, the new work regime has routed the union movement and destroyed any possibility of effective working-class politics.

Meanwhile, despite unprecedented investment in research on medicine and life sciences, we await cures for cancer and the common cold, and the most dramatic medical breakthroughs we have seen have taken the form of drugs such as Prozac, Zoloft, or Ritalin—tailor-made to ensure that the new work demands don’t drive us completely, dysfunctionally crazy.

With results like these, what will the epitaph for neoliberalism look like? I think historians will conclude it was a form of capitalism that systematically prioritized political imperatives over economic ones. Given a choice between a course of action that would make capitalism seem the only possible economic system, and one that would transform capitalism into a viable, long-term economic system, neoliberalism chooses the former every time. There is every reason to believe that destroying job security while increasing working hours does not create a more productive (let alone more innovative or loyal) workforce. Probably, in economic terms, the result is negative—an impression confirmed by lower growth rates in just about all parts of the world in the eighties and nineties.

But the neoliberal choice has been effective in depoliticizing labor and overdetermining the future. Economically, the growth of armies, police, and private security services amounts to dead weight. It’s possible, in fact, that the very dead weight of the apparatus created to ensure the ideological victory of capitalism will sink it. But it’s also easy to see how choking off any sense of an inevitable, redemptive future that could be different from our world is a crucial part of the neoliberal project.

At this point all the pieces would seem to be falling neatly into place. By the sixties, conservative political forces were growing skittish about the socially disruptive effects of technological progress, and employers were beginning to worry about the economic impact of mechanization. The fading Soviet threat allowed for a reallocation of resources in directions seen as less challenging to social and economic arrangements, or indeed directions that could support a campaign of reversing the gains of progressive social movements and achieving a decisive victory in what U.S. elites saw as a global class war. The change of priorities was introduced as a withdrawal of big-government projects and a return to the market, but in fact the change shifted government-directed research away from programs like NASA or alternative energy sources and toward military, information, and medical technologies.

Of course this doesn’t explain everything. Above all, it does not explain why, even in those areas that have become the focus of well-funded research projects, we have not seen anything like the kind of advances anticipated fifty years ago. If 95 percent of robotics research has been funded by the military, then where are the Klaatu-style killer robots shooting death rays from their eyes?

Obviously, there have been advances in military technology in recent decades. One of the reasons we all survived the Cold War is that while nuclear bombs might have worked as advertised, their delivery systems did not; intercontinental ballistic missiles weren’t capable of striking cities, let alone specific targets inside cities, and this fact meant there was little point in launching a nuclear first strike unless you intended to destroy the world.

Contemporary cruise missiles are accurate by comparison. Still, precision weapons never do seem capable of assassinating specific individuals (Saddam, Osama, Qaddafi), even when hundreds are dropped. And ray guns have not materialized—surely not for lack of trying. We can assume the Pentagon has spent billions on death ray research, but the closest they’ve come so far are lasers that might, if aimed correctly, blind an enemy gunner looking directly at the beam. Aside from being unsporting, this is pathetic: lasers are a fifties technology. Phasers that can be set to stun do not appear to be on the drawing boards; and when it comes to infantry combat, the preferred weapon almost everywhere remains the AK-47, a Soviet design named for the year it was introduced: 1947.

image

The Internet is a remarkable innovation, but all we are talking about is a super-fast and globally accessible combination of library, post office, and mail-order catalogue. Had the Internet been described to a science fiction aficionado in the fifties and sixties and touted as the most dramatic technological achievement since his time, his reaction would have been disappointment. Fifty years and this is the best our scientists managed to come up with? We expected computers that would think!

Overall, levels of research funding have increased dramatically since the seventies. Admittedly, the proportion of that funding that comes from the corporate sector has increased most dramatically, to the point that private enterprise is now funding twice as much research as the government, but the increase is so large that the total amount of government research funding, in real-dollar terms, is much higher than it was in the sixties. “Basic,” “curiosity-driven,” or “blue skies” research—the kind that is not driven by the prospect of any immediate practical application, and that is most likely to lead to unexpected breakthroughs—occupies an ever smaller proportion of the total, though so much money is being thrown around nowadays that overall levels of basic research funding have increased.

Yet most observers agree that the results have been paltry. Certainly we no longer see anything like the continual stream of conceptual revolutions—genetic inheritance, relativity, psychoanalysis, quantum mechanics—that people had grown used to, and even expected, a hundred years before. Why?

Part of the answer has to do with the concentration of resources on a handful of gigantic projects: “big science,” as it has come to be called. The Human Genome Project is often held out as an example. After spending almost three billion dollars and employing thousands of scientists and staff in five different countries, it has mainly served to establish that there isn’t very much to be learned from sequencing genes that’s of much use to anyone else. Even more, the hype and political investment surrounding such projects demonstrate the degree to which even basic research now seems to be driven by political, administrative, and marketing imperatives that make it unlikely anything revolutionary will happen.

Here, our fascination with the mythic origins of Silicon Valley and the Internet has blinded us to what’s really going on. It has allowed us to imagine that research and development is now driven, primarily, by small teams of plucky entrepreneurs, or the sort of decentralized cooperation that creates open-source software. This is not so, even though such research teams are most likely to produce results. Research and development is still driven by giant bureaucratic projects.

What has changed is the bureaucratic culture. The increasing interpenetration of government, university, and private firms has led everyone to adopt the language, sensibilities, and organizational forms that originated in the corporate world. Although this might have helped in creating marketable products, since that is what corporate bureaucracies are designed to do, in terms of fostering original research, the results have been catastrophic.

My own knowledge comes from universities, both in the United States and Britain. In both countries, the last thirty years have seen a veritable explosion of the proportion of working hours spent on administrative tasks at the expense of pretty much everything else. In my own university, for instance, we have more administrators than faculty members, and the faculty members, too, are expected to spend at least as much time on administration as on teaching and research combined. The same is true, more or less, at universities worldwide.

The growth of administrative work has directly resulted from introducing corporate management techniques. Invariably, these are justified as ways of increasing efficiency and introducing competition at every level. What they end up meaning in practice is that everyone winds up spending most of their time trying to sell things: grant proposals; book proposals; assessments of students’ jobs and grant applications; assessments of our colleagues; prospectuses for new interdisciplinary majors; institutes; conference workshops; universities themselves (which have now become brands to be marketed to prospective students or contributors); and so on.

As marketing overwhelms university life, it generates documents about fostering imagination and creativity that might just as well have been designed to strangle imagination and creativity in the cradle. No major new works of social theory have emerged in the United States in the last thirty years. We have been reduced to the equivalent of medieval scholastics, writing endless annotations of French theory from the seventies, despite the guilty awareness that if new incarnations of Gilles Deleuze, Michel Foucault, or Pierre Bourdieu were to appear in the academy today, we would deny them tenure.

There was a time when academia was society’s refuge for the eccentric, brilliant, and impractical. No longer. It is now the domain of professional self-marketers. As a result, in one of the most bizarre fits of social self-destructiveness in history, we seem to have decided we have no place for our eccentric, brilliant, and impractical citizens. Most languish in their mothers’ basements, at best making the occasional, acute intervention on the Internet.

image

If all this is true in the social sciences, where research is still carried out with minimal overhead largely by individuals, one can imagine how much worse it is for astrophysicists. And, indeed, one astrophysicist, Jonathan Katz, has recently warned students pondering a career in the sciences. Even if you do emerge from the usual decade-long period languishing as someone else’s flunky, he says, you can expect your best ideas to be stymied at every point:

You will spend your time writing proposals rather than doing research. Worse, because your proposals are judged by your competitors, you cannot follow your curiosity, but must spend your effort and talents on anticipating and deflecting criticism rather than on solving the important scientific problems. . . . It is proverbial that original ideas are the kiss of death for a proposal, because they have not yet been proved to work.

That pretty much answers the question of why we don’t have teleportation devices or antigravity shoes. Common sense suggests that if you want to maximize scientific creativity, you find some bright people, give them the resources they need to pursue whatever idea comes into their heads, and then leave them alone. Most will turn up nothing, but one or two may well discover something. But if you want to minimize the possibility of unexpected breakthroughs, tell those same people they will receive no resources at all unless they spend the bulk of their time competing against each other to convince you they know in advance what they are going to discover.

In the natural sciences, to the tyranny of managerialism we can add the privatization of research results. As the British economist David Harvie has reminded us, “open source” research is not new. Scholarly research has always been open source, in the sense that scholars share materials and results. There is competition, certainly, but it is “convivial.” This is no longer true of scientists working in the corporate sector, where findings are jealously guarded, but the spread of the corporate ethos within the academy and research institutes themselves has caused even publicly funded scholars to treat their findings as personal property. Academic publishers ensure that findings that are published are increasingly difficult to access, further enclosing the intellectual commons. As a result, convivial, open-source competition turns into something much more like classic market competition.

There are many forms of privatization, up to and including the simple buying up and suppression of inconvenient discoveries by large corporations fearful of their economic effects. (We cannot know how many synthetic fuel formulae have been bought up and placed in the vaults of oil companies, but it’s hard to imagine nothing like this happens.) More subtle is the way the managerial ethos discourages everything adventurous or quirky, especially if there is no prospect of immediate results. Oddly, the Internet can be part of the problem here. As Neal Stephenson put it:

Most people who work in corporations or academia have witnessed something like the following: A number of engineers are sitting together in a room, bouncing ideas off each other. Out of the discussion emerges a new concept that seems promising. Then some laptop-wielding person in the corner, having performed a quick Google search, announces that this “new” idea is, in fact, an old one; it—or at least something vaguely similar—has already been tried. Either it failed, or it succeeded. If it failed, then no manager who wants to keep his or her job will approve spending money trying to revive it. If it succeeded, then it’s patented and entry to the market is presumed to be unattainable, since the first people who thought of it will have “first-mover advantage” and will have created “barriers to entry.” The number of seemingly promising ideas that have been crushed in this way must number in the millions.

And so a timid, bureaucratic spirit suffuses every aspect of cultural life. It comes festooned in a language of creativity, initiative, and entrepreneurialism. But the language is meaningless. Those thinkers most likely to make a conceptual breakthrough are the least likely to receive funding, and, if breakthroughs occur, they are not likely to find anyone willing to follow up on their most daring implications.

Giovanni Arrighi has noted that after the South Sea Bubble, British capitalism largely abandoned the corporate form. By the time of the Industrial Revolution, Britain had instead come to rely on a combination of high finance and small family firms—a pattern that held throughout the next century, the period of maximum scientific and technological innovation. (Britain at that time was also notorious for being just as generous to its oddballs and eccentrics as contemporary America is intolerant. A common expedient was to allow them to become rural vicars, who, predictably, became one of the main sources for amateur scientific discoveries.)

Contemporary, bureaucratic corporate capitalism was a creation not of Britain, but of the United States and Germany, the two rival powers that spent the first half of the twentieth century fighting two bloody wars over who would replace Britain as a dominant world power—wars that culminated, appropriately enough, in government-sponsored scientific programs to see who would be the first to discover the atom bomb. It is significant, then, that our current technological stagnation seems to have begun after 1945, when the United States replaced Britain as organizer of the world economy.

Americans do not like to think of themselves as a nation of bureaucrats—quite the opposite—but the moment we stop imagining bureaucracy as a phenomenon limited to government offices, it becomes obvious that this is precisely what we have become. The final victory over the Soviet Union did not lead to the domination of the market, but, in fact, cemented the dominance of conservative managerial elites, corporate bureaucrats who use the pretext of short-term, competitive, bottom-line thinking to squelch anything likely to have revolutionary implications of any kind.

image

If we do not notice that we live in a bureaucratic society, that is because bureaucratic norms and practices have become so all-pervasive that we cannot see them, or, worse, cannot imagine doing things any other way.

Computers have played a crucial role in this narrowing of our social imaginations. Just as the invention of new forms of industrial automation in the eighteenth and nineteenth centuries had the paradoxical effect of turning more and more of the world’s population into full-time industrial workers, so has all the software designed to save us from administrative responsibilities turned us into part- or full-time administrators. In the same way that university professors seem to feel it is inevitable they will spend more of their time managing grants, so affluent housewives simply accept that they will spend weeks every year filling out forty-page online forms to get their children into grade schools. We all spend increasing amounts of time punching passwords into our phones to manage bank and credit accounts and learning how to perform jobs once performed by travel agents, brokers, and accountants.

Someone once figured out that the average American will spend a cumulative six months of life waiting for traffic lights to change. I don’t know if similar figures are available for how long it takes to fill out forms, but it must be at least as long. No population in the history of the world has spent nearly so much time engaged in paperwork.

In this final, stultifying stage of capitalism, we are moving from poetic technologies to bureaucratic technologies. By poetic technologies I refer to the use of rational and technical means to bring wild fantasies to reality. Poetic technologies, so understood, are as old as civilization. Lewis Mumford noted that the first complex machines were made of people. Egyptian pharaohs were able to build the pyramids only because of their mastery of administrative procedures, which allowed them to develop production-line techniques, dividing up complex tasks into dozens of simple operations and assigning each to one team of workmen—even though they lacked mechanical technology more complex than the inclined plane and lever. Administrative oversight turned armies of peasant farmers into the cogs of a vast machine. Much later, after cogs had been invented, the design of complex machinery elaborated principles originally developed to organize people.

Yet we have seen those machines—whether their moving parts are arms and torsos or pistons, wheels, and springs—being put to work to realize impossible fantasies: cathedrals, moon shots, transcontinental railways. Certainly, poetic technologies had something terrible about them; the poetry is likely to be as much of dark satanic mills as of grace or liberation. But the rational, administrative techniques were always in service to some fantastic end.

From this perspective, all those mad Soviet plans—even if never realized—marked the climax of poetic technologies. What we have now is the reverse. It’s not that vision, creativity, and mad fantasies are no longer encouraged, but that most remain free-floating; there’s no longer even the pretense that they could ever take form or flesh. The greatest and most powerful nation that has ever existed has spent the last decades telling its citizens they can no longer contemplate fantastic collective enterprises, even if—as the environmental crisis demands— the fate of the earth depends on it.

What are the political implications of all this? First of all, we need to rethink some of our most basic assumptions about the nature of capitalism. One is that capitalism is identical with the market, and that both therefore are inimical to bureaucracy, which is supposed to be a creature of the state.

The second assumption is that capitalism is in its nature technologically progressive. It would seem that Marx and Engels, in their giddy enthusiasm for the industrial revolutions of their day, were wrong about this. Or, to be more precise: they were right to insist that the mechanization of industrial production would destroy capitalism; they were wrong to predict that market competition would compel factory owners to mechanize anyway. If it didn’t happen, that is because market competition is not, in fact, as essential to the nature of capitalism as they had assumed. If nothing else, the current form of capitalism, where much of the competition seems to take the form of internal marketing within the bureaucratic structures of large semi-monopolistic enterprises, would come as a complete surprise to them.

Defenders of capitalism make three broad historical claims: first, that it has fostered rapid scientific and technological growth; second, that however much it may throw enormous wealth to a small minority, it does so in such a way as to increase overall prosperity; third, that in doing so, it creates a more secure and democratic world for everyone. It is clear that capitalism is not doing any of these things any longer. In fact, many of its defenders are retreating from claiming that it is a good system and instead falling back on the claim that it is the only possible system—or, at least, the only possible system for a complex, technologically sophisticated society such as our own.

But how could anyone argue that current economic arrangements are also the only ones that will ever be viable under any possible future technological society? The argument is absurd. How could anyone know?

Granted, there are people who take that position—on both ends of the political spectrum. As an anthropologist and anarchist, I encounter anticivilizational types who insist not only that current industrial technology leads only to capitalist-style oppression, but that this must necessarily be true of any future technology as well, and therefore that human liberation can be achieved only by returning to the Stone Age. Most of us are not technological determinists.

But claims for the inevitability of capitalism have to be based on a kind of technological determinism. And for that very reason, if the aim of neoliberal capitalism is to create a world in which no one believes any other economic system could work, then it needs to suppress not just any idea of an inevitable redemptive future, but any radically different technological future. Yet there’s a contradiction. Defenders of capitalism cannot mean to convince us that technological change has ended—since that would mean capitalism is not progressive. No, they mean to convince us that technological progress is indeed continuing, that we do live in a world of wonders, but that those wonders take the form of modest improvements (the latest iPhone!), rumors of inventions about to happen (“I hear they are going to have flying cars pretty soon”), complex ways of juggling information and imagery, and still more complex platforms for filling out of forms.

I do not mean to suggest that neoliberal capitalism—or any other system—can be successful in this regard. First, there’s the problem of trying to convince the world you are leading the way in technological progress when you are holding it back. The United States, with its decaying infrastructure, paralysis in the face of global warming, and symbolically devastating abandonment of its manned space program just as China accelerates its own, is doing a particularly bad public relations job. Second, the pace of change can’t be held back forever. Breakthroughs will happen; inconvenient discoveries cannot be permanently suppressed. Other, less bureaucratized parts of the world—or at least, parts of the world with bureaucracies that are not so hostile to creative thinking—will slowly but inevitably attain the resources required to pick up where the United States and its allies have left off. The Internet does provide opportunities for collaboration and dissemination that may help break us through the wall as well. Where will the breakthrough come? We can’t know. Maybe 3D printing will do what the robot factories were supposed to. Or maybe it will be something else. But it will happen.

About one conclusion we can feel especially confident: it will not happen within the framework of contemporary corporate capitalism—or any form of capitalism. To begin setting up domes on Mars, let alone to develop the means to figure out if there are alien civilizations to contact, we’re going to have to figure out a different economic system. Must the new system take the form of some massive new bureaucracy? Why do we assume it must? Only by breaking up existing bureaucratic structures can we begin. And if we’re going to invent robots that will do our laundry and tidy up the kitchen, then we’re going to have to make sure that whatever replaces capitalism is based on a far more egalitarian distribution of wealth and power—one that no longer contains either the super-rich or the desperately poor willing to do their housework. Only then will technology begin to be marshaled toward human needs. And this is the best reason to break free of the dead hand of the hedge fund managers and the CEOs—to free our fantasies from the screens in which such men have imprisoned them, to let our imaginations once again become a material force in human history.


Top Visited
Switchboard
Latest
Past week
Past month

NEWS CONTENTS

Old News ;-)

2015 2014 2013 2012

[Aug 22, 2019] The Two-Faced Elizabeth Warren by Matt Purple

Yes, is way Warren is a connuation of "Trump tradition" in the USA politics: reling of hate toward the neoliberalism establishment to get the most votes.
Aug 22, 2019 | www.theamericanconservative.com

...in a piece Warren wrote for Medium in which she (rightly) warned of "a precarious economy that is built on debt -- both household debt and corporate debt." Notably missing was the national debt, which amounts to around $182,900 per taxpayer and which Warren's policies would only steepen. How exactly is a government flailing in red ink supposed to make the country solvent? And what of the fact that some of the economy's woes -- student loan debt, for example -- were themselves at least in part caused by federal interventions?

Those objections aside, it would be wrong to dismiss Warren as just another statist liberal. She's deeper than that, first of all, having written extensively about economics, including her book The Two-Income Trap . But more importantly, she's put her finger on something very important in the American electorate. It's the same force that helped propel Donald Trump to victory in 2016: a seething anger against goliath institutions that seem to prize profit and power over the greater welfare. This is firmly in the tradition of most American populisms, which have worried less about the size of government and more about gilded influence rendering it inert.

Warren thus has a real claim to the Bernie Sanders wing of the Democratic Party, which is deeply skeptical of corporate power. She could even try to out-populist Donald Trump. She's already released more detailed policy proposals than any of her Democratic rivals, everything from sledgehammering the rich with new taxes to canceling student debt to wielding antitrust against big tech companies to subsidizing childcare. All this is chum to at least some of the Democratic base (old-school sorts rather than the SJWs obsessed with race and gender), and as a result, she's surged to either second or third place in the primary, depending on what poll you check. She's even elicited praise from some conservative intellectuals, who view her as an economic nationalist friendly to the family against the blackhearted forces of big.

America has been in a populist mood since the crash of 2008, yet in every presidential election since then, there's been at least one distinctly plutocratic candidate in the race. In 2008, it was perennial Washingtonian John McCain. In 2012, it was former Bain Capital magnate Mitt Romney. (The stupidest explanation for why Romney lost was always that tea party activists dragged him down. Romney lost because he sounded like an imposter and looked like the guy who fired your brother from that firm back in 1982.) And in 2016, it was, of course, Hillary Clinton, whose candidacy is what happens when you feed a stock portfolio and a government security clearance into a concentrate machine.

If Elizabeth Warren wins the Democratic nomination next year, it will be the first time since Bear Stearns exploded that both parties' candidates seem to reflect back the national temperament. It will also pose a test for Warren herself. On one hand, her economic policies, bad though they might be, stand a real chance of attracting voters, given their digestibility and focus on relieving high costs of living. On the other hand -- this is where Fauxcahontas comes back in -- a white woman claiming Indian status in order to teach at Harvard Law is pretty much everything Americans hate about politically correct identity politics.

The question, then, is which image of Warren will stick: one is a balm to the country's economic anxiety; the other is unacceptable to its cultural grievances. Right now we can only speculate, though it seems certain that Trump will try to define her as the latter while much of the media will intervene in the other direction.


john a day ago

Her entire political theory seems to have been that giant corporations should not be allowed to utterly screw the common man. That is about it, and for this she is called a commie radical. I like her, little afraid of foreign policy
=marco01= 18 hours ago • edited
Warren was born into a middle class family, Trump wasn't. Trump is playing the populist, he has no idea what average Americans deal with.

Warren was raised on the family lore of having native ancestry and she does. Not much but she does and that's all it takes to start family lore. Her Native American ancestor was from around the time of the American Revolution and it's easy to see how that legend could be passed down. There is no proof she ever benefited from this, she was just proud to have Native American ancestry.

Funny how the RW is so outraged by this one thing. Maybe it would be better for her to con people, lie and make stuff up nonstop like Trump. It seems a never ending blizzard of lies and falsehoods renders one immune.

polistra24 18 hours ago
Let's remember that our only effective populist, in fact our only effective president, was a rich patrician. FDR's roots went back to the Mayflower, yet he was able to break the influence of the banks and give us 50 years of bubble-free prosperity. The only thing that counts is GETTING THE WORK DONE.
Nelson 12 hours ago
Her economics aren't bad. She herself claims to be a capitalist, she just wants our massive economy to also benefit regular folks instead of just the elites. And whatever economic program she proposes is most likely further left than she thinks necessary because that's a better negotiating position to start from. Remember every proposal has to go through both branches of Congress to become law, and they will absolutely try to make everything more pro-corporate because that is their donor base.
cka2nd 11 hours ago
"And what of the fact that some of the economy's woes -- student loan debt, for example -- were themselves at least in part caused by federal
interventions?"

Mr. Purple might want to remind himself that 75% of federal student financial aid in the 1970's was in the form of grants, not loans, and that it was only after the intervention of conservative Republican congressman Gerald "Jerry" Solomon and the Reagan Administration that the mix of federal student financial aid was changed to be 75% loans and only 25% grants. I believe the Congressman used to rail against free riding college students, which is all well and good until one finds that the "free hand of the market" becomes warped by so many people being in so much debt, and all of them being too small to save.

Democrats might want to ask Joe Biden about this, considering his support for legislation that made it harder to discharge student debt in bankruptcy proceedings. They might also ask Senator Warren about this subject.

Absolute Fictions 11 hours ago
Warren believed her family story. Trump, on the other hand, knew that his family was not Swedish, but knowingly continued the lie for decades, including in "The Art of Deal " - claimin his grandfather came "from Sweden as a child" (rather than dodging the draft in Bavaria who made his fortune in red light districts of the Yukon territory before trying to return to the Reich).

Warren made no money from her heritage claims, but the $413 million (in today's dollars) given to Trump by his daddy was made by lying to Holocaust survivors in Brooklyn and Queens who, understandably, did not want to rent property from a German.

Vanity Fair asked him in 1990 if he were not in fact of German origin. "Actually, it was very difficult," Donald replied. "My father was not German; my father's parents were German Swedish, and really sort of all over Europe and I was even thinking in the second edition of putting more emphasis on other places because I was getting so many letters from Sweden: Would I come over and speak to Parliament? Would I come meet with the president?"

JeffK from PA 10 hours ago
This column was pretty much as I expected. It started out by rehashing all of the Fox News talking points about Warren, without debunking those that were without merit.

After that it touched on Morning Joe's take on her, just to make it 'fair and balanced'.

Then it acknowledged, briefly, that she has been correct in many areas. No comment on how the CFPB recovered hundreds of millions of $$ from corporations that abused their power or broke the law.

Then it mis-characterized the impact of her policies "sledgehammering the rich", "economic policies, bad though they might be".

Dismiss Warren all you want. She could very well be the nominee, or the VP. She would eviscerate Trump in a debate. Her knowledge of issues, facts and policies would show Trump to be what he is. A narcissistic, idiotic, in-over-his-head clueless and dangerous buffoon. I anticipate Trump would fall back on his favorite tropes. Pocahontas, socialist, communist, and MAGA.

My opinion is that the average American is getting really tired of Trump's shtick. The country is looking for somebody with real solutions to real problems. This reality tv star act is getting pretty old....

Kent 10 hours ago
Good article. Especially enjoyed this turn of phrase:

"And in 2016, it was, of course, Hillary Clinton, whose candidacy is what happens when you feed a stock portfolio and a government security clearance into a concentrate machine."

Really enjoyable.

I don't think anyone is going to care about the pocahontas thing. This election will be squarely about Trump. I think Warren is by far the best candidate the dems can bring out if they want to beat him. A Warren/Buttigieg or a Warren/Tulsi ticket would likely be a winner.

Bernie's a little too far to the left for Joe Lunchbucket, Joe Biden is a crooked Hillary wannabe, Kamala Harris is unlikeable, and the rest won't rise out of the dust.

Heaventree 9 hours ago • edited
The whole business about her supposed Native American ancestry and whatever claims she made will make no difference to anybody other than folks like Matt Purple who wouldn't support her under any circumstances anyway.
Consider that the best-known advocate of the "Pocahontas" epithet is of course Donald Trump, whose entire reputation is built on a foundation of bulls--t and flim-flam.
Lynnwig 9 hours ago
"Thus in retrospect was it the "Obama" in "Obamacare" that was the primary driver of opposition from conservatives, only for their concerns over federal intrusion to mostly disappear once Trump was at the controls."

No. What disappeared was the Individual Mandate. THAT was what rankled me...the government can do whatever stupid thing they want as long as they don't try to force me into it.

[Aug 21, 2019] Trump's Deficit Economy is bonanza for large coporation but not for the US workers. Fiscal stimulus now is just pushing on the string

Highly recommended!
The US economy has not been working for most Americans, whose incomes have been stagnating – or worse – for decades. These adverse trends are reflected in declining life expectancy. The Trump tax bill made matters worse by compounding the problem of decaying infrastructure, weakening the ability of the more progressive states to support education, depriving millions more people of health insurance, and, when fully implemented, leading to an increase in taxes for middle-income Americans, worsening their plight.
Notable quotes:
"... Long ago, John Maynard Keynes recognized that while a sudden tightening of monetary policy, restricting the availability of credit, could slow the economy, the effects of loosening policy when the economy is weak can be minimal. Even employing new instruments such as quantitative easing can have little effect, as Europe has learned. In fact, the negative interest rates being tried by several countries may, perversely, weaken the economy as a result of unfavorable effects on bank balance sheets and thus lending. ..."
"... The lower interest rates do lead to a lower exchange rate. Indeed, this may be the principal channel through which Fed policy works today. But isn't that nothing more than "competitive devaluation," for which the Trump administration roundly criticizes China? ..."
"... But, at another level, the Fed action spoke volumes. The US economy was supposed to be "great." Its 3.7% unemployment rate and first-quarter growth of 3.1% should have been the envy of the advanced countries. But scratch a little bit beneath the surface, and there was plenty to worry about. Second-quarter growth plummeted to 2.1%. Average hours worked in manufacturing in July sank to the lowest level since 2011. Real wages are only slightly above their level a decade ago, before the Great Recession. Real investment as a percentage of GDP is well below levels in the late 1990s, despite a tax cut allegedly intended to spur business spending, but which was used mainly to finance share buybacks instead. ..."
"... America should be in a boom, with three enormous fiscal-stimulus measures in the past three years. The 2017 tax cut, which mainly benefited billionaires and corporations, added some $1.5-2 trillion to the ten-year deficit. An almost $300 billion increase in expenditures over two years averted a government shutdown in 2018. And at the end of July, a new agreement to avoid another shutdown added another $320 billion of spending. If it takes trillion-dollar annual deficits to keep the US economy going in good times, what will it take when things are not so rosy? ..."
"... Redistribution from the bottom to the top – the hallmark not only of Trump's presidency, but also of preceding Republican administrations – reduces aggregate demand, because those at the top spend a smaller fraction of their income than those below. This weakens the economy in a way that cannot be offset even by a massive giveaway to corporations and billionaires. And the enormous Trump fiscal deficits have led to huge trade deficits, far larger than under Obama, as the US has had to import capital to finance the gap between domestic savings and investment. ..."
"... Trump promised to get the trade deficit down, but his profound lack of understanding of economics has led to it increasing, just as most economists predicted it would. Despite Trump's bad economic management and his attempt to talk the dollar down, and the Fed's lowering of interest rates, his policies have resulted in the US dollar remaining strong, thereby discouraging exports and encouraging imports ..."
Aug 10, 2019 | economistsview.typepad.com

anne , August 10, 2019 at 06:18 AM

https://www.project-syndicate.org/commentary/trump-trade-and-fiscal-deficits-by-joseph-e-stiglitz-2019-08

August 9, 2019

Trump's Deficit Economy

Economists have repeatedly tried to explain to Donald Trump that trade agreements may affect which countries the US buys from and sells to, but not the magnitude of the overall deficit. But, as usual, Trump believes what he wants to believes, leaving those who can least afford it to pay the price.
By JOSEPH E. STIGLITZ

NEW YORK – In the new world wrought by US President Donald Trump, where one shock follows another, there is never time to think through fully the implications of the events with which we are bombarded. In late July, the Federal Reserve Board reversed its policy of returning interest rates to more normal levels, after a decade of ultra-low rates in the wake of the Great Recession. Then, the United States had another two mass gun killings in under 24 hours, bringing the total for the year to 255 – more than one a day. And a trade war with China, which Trump had tweeted would be "good, and easy to win," entered a new, more dangerous phase, rattling markets and posing the threat of a new cold war.

At one level, the Fed move was of little import: a 25-basis-point change will have little consequence. The idea that the Fed could fine-tune the economy by carefully timed changes in interest rates should by now have long been discredited – even if it provides entertainment for Fed watchers and employment for financial journalists. If lowering the interest rate from 5.25% to essentially zero had little impact on the economy in 2008-09, why should we think that lowering rates by 0.25% will have any observable effect? Large corporations are still sitting on hoards of cash: it's not a lack of liquidity that's stopping them from investing.

Long ago, John Maynard Keynes recognized that while a sudden tightening of monetary policy, restricting the availability of credit, could slow the economy, the effects of loosening policy when the economy is weak can be minimal. Even employing new instruments such as quantitative easing can have little effect, as Europe has learned. In fact, the negative interest rates being tried by several countries may, perversely, weaken the economy as a result of unfavorable effects on bank balance sheets and thus lending.

The lower interest rates do lead to a lower exchange rate. Indeed, this may be the principal channel through which Fed policy works today. But isn't that nothing more than "competitive devaluation," for which the Trump administration roundly criticizes China? And that, predictably, has been followed by other countries lowering their exchange rate, implying that any benefit to the US economy through the exchange-rate effect will be short-lived. More ironic is the fact that the recent decline in China's exchange rate came about because of the new round of American protectionism and because China stopped interfering with the exchange rate – that is, stopped supporting it.

But, at another level, the Fed action spoke volumes. The US economy was supposed to be "great." Its 3.7% unemployment rate and first-quarter growth of 3.1% should have been the envy of the advanced countries. But scratch a little bit beneath the surface, and there was plenty to worry about. Second-quarter growth plummeted to 2.1%. Average hours worked in manufacturing in July sank to the lowest level since 2011. Real wages are only slightly above their level a decade ago, before the Great Recession. Real investment as a percentage of GDP is well below levels in the late 1990s, despite a tax cut allegedly intended to spur business spending, but which was used mainly to finance share buybacks instead.

America should be in a boom, with three enormous fiscal-stimulus measures in the past three years. The 2017 tax cut, which mainly benefited billionaires and corporations, added some $1.5-2 trillion to the ten-year deficit. An almost $300 billion increase in expenditures over two years averted a government shutdown in 2018. And at the end of July, a new agreement to avoid another shutdown added another $320 billion of spending. If it takes trillion-dollar annual deficits to keep the US economy going in good times, what will it take when things are not so rosy?

The US economy has not been working for most Americans, whose incomes have been stagnating – or worse – for decades. These adverse trends are reflected in declining life expectancy. The Trump tax bill made matters worse by compounding the problem of decaying infrastructure, weakening the ability of the more progressive states to support education, depriving millions more people of health insurance, and, when fully implemented, leading to an increase in taxes for middle-income Americans, worsening their plight.

Redistribution from the bottom to the top – the hallmark not only of Trump's presidency, but also of preceding Republican administrations – reduces aggregate demand, because those at the top spend a smaller fraction of their income than those below. This weakens the economy in a way that cannot be offset even by a massive giveaway to corporations and billionaires. And the enormous Trump fiscal deficits have led to huge trade deficits, far larger than under Obama, as the US has had to import capital to finance the gap between domestic savings and investment.

Trump promised to get the trade deficit down, but his profound lack of understanding of economics has led to it increasing, just as most economists predicted it would. Despite Trump's bad economic management and his attempt to talk the dollar down, and the Fed's lowering of interest rates, his policies have resulted in the US dollar remaining strong, thereby discouraging exports and encouraging imports. Economists have repeatedly tried to explain to him that trade agreements may affect which countries the US buys from and sells to, but not the magnitude of the overall deficit.

In this as in so many other areas, from exchange rates to gun control, Trump believes what he wants to believe, leaving those who can least afford it to pay the price.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University.

[Aug 21, 2019] The shades of securlar stagnation of the US economy

Aug 21, 2019 | www.nakedcapitalism.com

Synoia , August 19, 2019 at 5:03 pm

Whatever was invested in China over the last 20 or 30 years would have to be invested in the US.

I don't understand why any investor, or the stock market, would provide that level of investment. Where would be the return?

The US built its industrial base on 150 years of investment before 1970, because it has a continent in which to expand, and a determination not to become a UK vassal state, again.

And then there is climate change ..where China's new industrial areas will become threatened by rising sea levels

Tomonthebeach , August 19, 2019 at 5:18 pm

In a sense, Synoia's remarks vindicate Trump's bogus assertion that trade war is necessary for national security. At least in this sector, he is probably correct about the security risk. Of course, his disastrous solution is something he overheard on FoxNews from his now dimwit economic advisor – the one who would not recognize a recession if it bit him in the nose.

Can we really make guns and bullets and tanks and planes without US manufacturing? We would probably have to depend on allies for that. Alas, we are not so palzy-walzy with China. There is Germany – a stalwart of machining savvy – but Trump would rather mock German leaders on Twitter than do biz with DE.

Synoia , August 19, 2019 at 9:29 pm

Trump's bogus assertions could only be vindicated if he enunciated an industrial policy, including the missing skills, training and money to repatriate manufacturing, which destroys the investment by our beloved multinationals in Mexico, China and elsewhere.

I was gently pointing out that Trump has his head so far up his a.., that one can hear him talking.

Lambert Strether Post author , August 20, 2019 at 6:20 am

It is true that one must blow apart the pro-globalist consensus, and this Trump has done. (Not passing TPP was a clear win, and we should take that win. So far as I know, TTiP is off the front burner now, too). It is also true that tariffs have to part of any solution. But beyond this, coherence eludes the administration. Clearly, industrial policy is part of the solution. Warren's plan doesn't provide it, either.

Amfortas the hippie , August 20, 2019 at 9:26 am

I understand that such talk is considered old fashioned, these days,lol but does "Industrial Policy" include things like "paying the Workers" or even just "Not Screwing the Workers"?
Or is that a separate hill to climb?
NC and NC Commentariat is excluded from this snark and cynicism.
I think of my grandad's small manufacturing business in Houston we built the brewery, the box plants the can plants and a lot of the refineries, as well as a whole bunch of other stuff that's now rusting away.
but a big part of his Ethos was taking care of his workers.
Talking about that ethos, today, anywhere else but here, seems somehow quaint.
after 50 years of financialised globalisation and Free Capital, I think that Ethos needs to be stated right out front, and as clear as a bell, so the lawyers and pols can't wiggle out of it.
like the mentioned "job training", but larded with MBA's running the show that's what the people who will write the rules Believe "trade is always good!", "maximise transactions!", etc.
the entire Belief System we operate under most often without thought needs to go.
otherwise, any "reindustrialisation" will be as i have feared was the plan all along: to wait until we're desperate enough to arbitrage, and will work for pennies to provide the Chinese Middle Class with cheap plastic pumpkins.

Susan the other` , August 20, 2019 at 2:15 pm

Thanks for this analysis. And the word Hysteresis. Could be the dilution of trauma, but it never goes away. You'd think it would function like a social vaccine, no? But clearly the only thing that can cure it is equity and security. Where's our HAL? We need a computer to maintain social equality. I also agree that Liz's Economic Patriotism is puffery in most places. Increasing exports is an absurd goal when the world is deindustrializing. Becoming nationally self-sufficient is a much better goal. Foundries and forges are the biggest polluters so their use will be modest. I remember only about 2 or 3 years ago we were all very smug about the fact that China had no machine tool industry. The Chinese have really knocked us all back on our heels. But my take on all this is it is time for change and we shouldn't fight the last war. We should adapt using all our science and technology and creativity. We should do Environmental manufacturing. How many engineering, physics, agriculture, aquaculture, chemistry departments (to name a few) couldn't supply us with state of the art technology to turn all our exorbitant recycling into new useful machinery? It might be expensive when we can't externalize the heat, pollution and waste as we used to under old fashioned machine manufacturing, but the payoff for the environment will be earth-changing. And we might even learn to survive.

Oh , August 20, 2019 at 4:21 pm

Our current industrial policy consists of:
* Allowing big corporations to avoid taxes
* Destroying/marginalizing labor unions
* Being in bed with the Chambers of COmmerce
* Hand outs to yuuge corporations (via sweetheart contracts)
*Price supports to large corporate farmers
*Enforcing patents, trademarks for yuuge corporations
*Big finance to large corporations and saving TBTF banks
^Bankruptcy laws that favor big business
*NAFTA and other trade treaties to help multinationals
*H1B and other visas that reduce labor costs for big employers
*Not prosecuting corps that employee undocumented works
*Destroyng economies of developing countries to favor our exports
*fomenting unrest wherever industries are nationalized to help our corps
*Aggresively defending the almighty dollar by every means possible
*Funnelling tax payers funds to universities for research to help big Pharma
*Making sure our Insurance and RE sectors are subsidized through loans and bailouts

I'm sure there are more but I can't think of all of them.
Who says we don't have an industrial policy?

sierra7 , August 20, 2019 at 8:17 pm

"Oh";
Thank you, thank you, thank you!
The bottom line!
As an added comment I just can't believe that this is what would not have been expected with any sniff of "globalization" back in it's birthing 30 years ago. What did Americans expect? We dominated the post WW2 years in good manufacturing jobs while most of the world was licking their wounds from that war; the rest of the world has caught up and passed us by assisted by the globalization of flows of funds with the click of a mouse. Labor can't move like that. The "Renaissance" of Jobs" is a farce and an illusion. Unless the US comes up with something so new in manufacturing and can control that process for decades to come it is descending more an more into a 3rd world status; a super wealthy small upper class and the rest in "rickshaw" land. Even trade "wars" will not help.

rd , August 19, 2019 at 6:41 pm

The Chinese government has a pact with its population: the government makes sure the economy is structured to provide jobs and the people promise not to overturn the government through revolution.

When it is existential, then it becomes important. The US has simply stated that "The Market" will determine what makes sense. Nothing existential there.

So people became disposal, fungible assets for the MBAs to run their spreadsheet numbers on. For years they could assume that they could simply rehire skilled labor. However, that skilled labor is retiring or becoming out of date, so the workers are no longer fungible. The bleating begins about the lack of skilled labor because "somebody else" was responsible for providing the skilled labor training. So most US firms have gone the Tim Cook route and out-sourced to other countries that have trained workers and engineers over the past 20 years.

It will require a major paradigm shift from both government and corporations to change the trends.

Godfree Roberts , August 19, 2019 at 10:48 pm

The Chinese government has a pact with its population: the government makes sure the economy is structured to provide jobs and the people promise not to overturn the government through revolution.

The American government has a pact with its population: the government makes sure the economy is moved abroad and promises to kill the people if they attempt to overturn the government through revolution.

Personally, I prefer the first option.

a different chris , August 20, 2019 at 8:53 am

And it's not just "the government" -- it's more the other MIC: The Marketing Importing Complex. Apple is worth nearly a trillion dollars, that's 1/12 of China's GDP!

They could have used not so much of that money at all to train several workforces and build many factories. But that's not what brings in the big executive compensation.

Michael von Plato , August 20, 2019 at 1:17 pm

And related to the loss of a skilled worker base is the loss of patents needed to compete. Although many patents for original inventions still originate in the US, subsequent patents on improvements originate not in a lab, but from the shop floor. For example, the original machinery for producing microchips may well have originated here, but as that industry moved overseas, so did the patents on improvements. I doubt that we could compete in the manufacture of LEDs, flat-screen TVs or monitors etc. even if we could do so economically: the patents for the machines to make these things now reside overseas, in the hands of those manufacturers that have been improving them for decades.

JohnnyGL , August 19, 2019 at 5:10 pm

Good little post. A timely reminder that we've been bleeding those jobs and it's an ongoing process, but we've already bled a lot of them away.

It's now been 20 years since PNTR with China. The direction has become clear. It's going to take a tremendous amount of political will to change that direction. There are early signs of a change, but not enough, yet.

Tariffs will need to be part of the answer. Fiscal policy and federal contracts will need to be part of it. New regulatory bodies with new powers to enforce federal policy, too.

Also, my inner-Matt Stoller would like to remind us all that anti-monopoly is going to need a prominent role, too. The business model of private equity has been to buy up a all competitors in a particular niche, become a single supplier to the government, outsource to cut costs. Then, jack up prices to boost margins.

'skills-based immigration' doesn't have a good track record. Look at H1B visas. They've been turned into a vehicle to import low wage labor, and then enable outsourcing.

Lambert Strether Post author , August 20, 2019 at 7:22 am

> 'skills-based immigration' doesn't have a good track record. Look at H1B visas. They've been turned into a vehicle to import low wage labor, and then enable outsourcing.

They work for Canada, so we should copy them.

Roger Boyd , August 20, 2019 at 5:15 pm

The US H1B is an employment based non-immigrant visa, easy for corporations to use for their own purposes – especially when the person's right to reside relies upon their continued employment at their sponsoring employer.

Canada has a points based immigration system for the majority of immigrants (others are family reunification etc.) that is not employment based. Those getting the required points are given permanent residency (with a path to citizenship within 4 years). They can move from job to job at will. Its how I became a Canadian citizen.

Much less exploitable than a US H1B Visa holder.

Summer , August 19, 2019 at 6:23 pm

With all the scam online business listings, it also gives people the impression of a business environment that is active but it's a con.

NJ , August 20, 2019 at 4:11 am

I was thinking about this the other day in response to the Economist's recent article about a new boom in employment.

Does anyone know if scam artists, ransomeware senders, illegal salvagers, and stolen goods fencers would be counted as part of official employment statistics?

There's a whole section of the economy that is growing right now based upon illegally raiding closed down big box stores and selling the goods on eBay. Similarly, just like in any other time when inequality is high, scams and efforts to deceive others for profit are on the rise.

Lambert Strether Post author , August 20, 2019 at 7:23 am

That's perceptive. I would bet Manhattan on Google maps has many, many more "firms" than Manhattan at street level, where you see a "For Rent" sign on every block.

Summer , August 19, 2019 at 6:44 pm

An idea for a fun chart: how many types of marketing jobs are there now?

somecallmetim , August 19, 2019 at 6:53 pm

? However, I've highlighted the categories that really concern Collins in blue; they all have to do with, as Cook calls it, tooking. ?

Not a sophisticate, so I assumed – tooking – was a term of art.

Bill H , August 19, 2019 at 7:30 pm

Pretty sure it was one of many misspellings, and that what was meant was "tooling." Hard to take articles seriously when the writer doesn't even bother to run them through spellcheck.

Big River Bandido , August 19, 2019 at 10:35 pm

Someone piss on your cornflakes this morning?

Lambert Strether Post author , August 20, 2019 at 7:26 am

It's a big Internet. I hope you find the perfection you seek elsewhere.

doug , August 20, 2019 at 9:57 am

+10000

Clive , August 20, 2019 at 11:11 am

Somebody up there never read The Grauniad , nor appreciated how it came to earn that particular nickname . Hard to take comments seriously when the writer doesn't even bother to consider the proverb "let he who is without sin cast the first snote".

Ptb , August 19, 2019 at 7:20 pm

The bad news is that what is also lost is a caring-about-getting-details-right culture. Nearly extinct, in fact, at the business level, and I would sadly include engineering-intensive businesses (based on what little I have experienced.)

The good news is that North America has plenty of the human resources (and physical plant) we are talking about, mostly within a short drive of the border, even.

I would actually be more inclined to despair about the former than the latter.

Steve , August 19, 2019 at 7:44 pm

An alternative view that is hard to evaluate from this data we should be looking a domestic manufacturing economic value, not jobs. While loss of jobs is certainly bad, isn't it ameliorated if the manufacturing activity is taking place in the US? Hard to evaluate with given data.

Left in Wisconsin , August 20, 2019 at 12:20 am

Not necessarily. The problem with trying to evaluate "value" in trans-national Apple- or Walmart-style value chains is that the dominant player (Apple, Walmart) recognizes almost all of the value-added. (One could add " regardless of where that value is created" but, as Veblen pointed out a hundred years ago, there is no way to disentangle productive value from "buying and selling," so there is no "correct" way to assign value.)

The fact that Foxconn in China pays really low wages and has relatively tight profit margins leads to the conclusion that the value contribution per capita of Apple employees (because contractors don't create value either) is if I recall correctly several million dollars per employee. If that manufacturing work was done in the U.S., the value-per-employee would be much lower (still very high) but the wages paid, and worker living standards, would be much higher. (This would also be true, though to a lesser extent, if they doubled or tripled the wages of their Foxconn workforce in China.)

On top of this, of course, are the income-recognition and tax games that multinationals play. Economists know about these but somehow seem to think national data provide (a different set of?) "true" representations of value-added anyway.

Bob , August 19, 2019 at 7:47 pm

It is interesting to know that for furniture the timber is felled here in the US, the timber milled into lumber here, kiln dried here, packed into containers here, shipped from here to China, turned into furniture, knocked down, shipped here and reassembled here.

Not sure where the savings are but I suspect that the goal was to maximize profit and minimize taxes.

Of course no one will be left to buy furniture except on credit.

Summer , August 19, 2019 at 8:40 pm

I've been thinking about not only the manufacture of things like that but the craftsmanship that went into it (once upon a time).
I noticed the street lamps in Hollywood. The older ones that still work are black and elegantly designed steel. The part holding the lamp, the steel is bent like an arm flexing biceps.

The newer ones are taller. But just steel, bland, straight, can see them anywhere

cnchal , August 19, 2019 at 8:54 pm

Now you're talking . . . MMT

( M aterial M eets T ool X sales) – expenses = profit or loss

Got tooling?

> . . . Apprenticeships and training are good, but why not consider skills-based immigration that brings in the worker we'd otherwise have to wait to train?

Piss off. After the tooling industry was destroyed by cheap Chinese labor, you want to bring them in to further destroy it or take it over?

Bob , August 19, 2019 at 11:04 pm

Cheap Chinese labor in fact offshore labor is at best a canard and generally not far from a deception which repeated often enough becomes fact.

A good approach is to look at the labor quotient that is the cost of labor necessary to create a finished product.

For example in aluminum manufacture using the Hall process to reduce bauxite the majority of the cost is in electricity perhaps as much as 90%+ and labor cost is around 5%. So any manger worth his paycheck moves the operation to a a region of low power cost e.g. Iceland, Bonneville power territory, TVA. Labor cost is minimal perhaps 5%.

At one time the labor cost for textiles was around 17 % with the aim of the mills to drive the labor quotient to 12% through automation.

In addition if labor costs were the driving force in manufacturing it would be reasonable for all of U.S, manufacturing to relocate to low wage states such as Mississippi or the Dakotas.

And one should note that the multinationals are not shy of hiring U.S. labor at their factories here in the US.

The goal of U.S. corporations is to take advantage of tariffs (taxes) and the greater flexibility of accounting in offshore locations.

skippy , August 20, 2019 at 1:23 am

See Bluescope here in Oz shifting more Mfg to the U.S. due to energy costs.

cnchal , August 20, 2019 at 7:23 am

My lived experience tells a different story..

Before my ex customers and I parted ways, they used to get me to quote tooling work and then send the work to China. The reason given, my price was too high and they could get if for a fraction of that in China. No, it wouldn't be the same tool, but they liked to think they were getting an equivalent.

Before I gave up on them and fired my rotten customers, I used to ask "where is my one dollar per day cop", my one dollar per day teacher, my one dollar per day politician" so that my cost are in line with the Chinese? That drew a blank stare every time with no answer.

Tooling work is labor intensive and not comparable to generating electric power.

I view tooling as society's precious metal. It is the "means of production". The lawyers and politicians (one and the same from my viewpoint) running the country for their own benefit (they could not care less about you or me) make their money by charging the victim that darkens their doorway $500 bucks an hour. For them, they produce nothing and take it all, and their view of wealth generation is distorted by their occupation. They are quick to hand money to the biggest corporations to make them richer (see Wal-Mart and Amazon's massive billions in subsidies), but a little guy like me can rot in hell.

Globalization is a disaster, no matter where one cares to look.

Lambert Strether Post author , August 20, 2019 at 7:39 am

> I view tooling as society's precious metal. It is the "means of production".

"Constant capital" is what The Bearded one called it, I believe. But yes.

inode_buddha , August 20, 2019 at 11:35 am

AMEN. My lived hell for the last 30 years And then some smug right wing nut job tells me I'm just jealous

Andy Raushner , August 20, 2019 at 3:52 pm

Send the work to China has been dying since 2005. Didn't you notice? US heavy manufacturing has ex-material extraction almost looks now where it was in 2000. That isn't necessarily a good thing. Debt driven illusions can kill.

Oh , August 20, 2019 at 5:00 pm

One operation as an example is not apply to all manufacturing.

Lambert Strether Post author , August 20, 2019 at 7:29 am

> After the tooling industry was destroyed by cheap Chinese labor, you want to bring them in to further destroy it or take it over?

No, I don't. If there's a sane industrial policy, then (a) there's more than enough work for everybody and (b) we can pay "prevailing wages" as we ought to do. I think in this case the country is in such a hole we can add on, and the game is not zero sum. Not the same as, say, meatpacking.

cnchal , August 20, 2019 at 8:46 am

Big if, there. The managers and owners that would influence industrial policy will waste no time in bringing over 10,000 or 100,000 or however many they wanted, and swamp the industry with cheap labor.

According to Cook, there are millions upon millions of toolmakers and machinists in China, so even a million wouldn't be missed. Toolmaking becomes the new meatpacking.

My bet is there will be no sane industrial policy.

inode_buddha , August 20, 2019 at 2:32 pm

There isn't going to be an industrial policy. Because markets.

ambrit , August 19, 2019 at 9:56 pm

A possible "Black Swan" in all this national manufacturing quandry is the fragility of the supply chains involved. Today, the costs of shipping materials and goods across an entire ocean are managed through scale, (Embiggening Shipping Incorporated,) computerized scheduling, (Just In Time Ordering,) and cheap energy, (Fearless Fred's Fracking Et Cie.) Any one of those inputs could go asymmetric and make the exercise of Materials Globalization uneconomic. Then people would have to either pay more for something or do without. Either outcome would reduce aggregate economic activity in the nation. The social result would be another example of 'hystereisis,' people remembering what their and family members standards of living once were, and taking that for a 'normal' that has been stolen from them. A process similar to that which preceded the French Revolution will be in play.

RepubAnon , August 19, 2019 at 10:51 pm

It also helps to have clusters of similar industries in the same location. This gives new companies an area with lots of folks with the appropriate skills. We lost these "centers of manufacturing excellence" when so much of it got off-shored. It'll take significant efforts to bring them back.

Lambert Strether Post author , August 20, 2019 at 7:30 am

An excellent additional aspect!

Left in Wisconsin , August 20, 2019 at 12:25 am

You are of course correct but good people have been making this argument for the last 40 years with virtually no impact on corporate behavior. I'm no expert in Chinese manufacturing but I would have to think by now the technical capacity in China – not saying everywhere but certainly in large parts of the export sector – is very high. Yet the wages and working conditions are still terrible. So much for productivity = wages.

ambrit , August 20, 2019 at 9:41 am

True. In a stable environment, labour availability 'drives' wages. That was the secret the Unions levered to success. Restrict the supply of labour and squeeze the owners. Find a "fair" balance and the Golden Age ensues. The "fair" part of that equation was redefined, and here we are.

ambrit , August 19, 2019 at 10:07 pm

A risible 'Snark' if you will.
Lambert claims to have been a "model railroader" when young. Such virtue in one so young! I, poor deplorable, primarily associated with louche and gauche railroaders and tabletop gamers. So it is understandable that he grabbed the Iridium Ring while I merely took a circular ride. The "Eternal Return" in all it's refulgent glory. (I should meditate more on my exorcising of 'amor fati.')

deplorado , August 19, 2019 at 11:02 pm

Funny!

Godfree Roberts , August 19, 2019 at 10:46 pm

To quote a friend who hires workers for factories in the US and China,
"Manufacturing in the US is a nightmare. At our facility our only requirement for assemblers was a high school degree, US citizenship, passing a drug and criminal background check and then passing a simple assembly test: looking at an assembly engineering drawing and then putting the components together. While the vast majority of Americans were unable to complete the assembly test, in China they completed it in half the time and 100% of applicants passed. An assembler position in the US would average 30 interviews a day and get 29 rejections, not to mention all the HR hassles of assemblers walking off shift, excessive lateness, stealing from work, slow work speed and poor attitudes. The position starts at $12 an hour in flyover country which is pretty reasonable compared to other jobs that only require a GED and no prior work experience and offers medical, dental and annual raises with plenty of opportunity to move up in the company and earn the average salary for a Production Assembler, $33,029 in US, if they stay for five years.
Identical positions in China pay the same wages as other positions there with only a high school degree and no work experience. Yet the applicant quality is much higher and this applies to the white collar support professionals: schedulers, quality inspectors, equipment testers and calibrators, engineers, supply chain managers, account managers, sales. Their labor quality is simply higher. At the end of the day, high-end and middling manufacturing is not moving to the US or Mexico because average people in flyover country are dumb as rocks."

Left in Wisconsin , August 20, 2019 at 1:11 am

1. Just curious but does your friend say what the wages are in the Chinese plants? Do they reflect the quality of the applicant pool? Based on the talent levels you describe, they should all be making $100K/yr. At least 50. And not having to live in dormitories. Maybe the fact that your friend has access to such a talented workforce at starvation wages has something to do with workers not really being free? Why do we call it free trade, anyway?
2. I have no reason to doubt the fact set you describe. But it could have turned out differently, and the reason it didn't was that companies that were developed and initially made huge profits in this country decided to take the jobs elsewhere because they could make even huger profits. Everything else flowed from that.

Lambert Strether Post author , August 20, 2019 at 7:34 am

> Their labor quality is simply higher

Thanks, as Tim Cook points out, to the quality of Chinese public education, which our own elites have been busily destroying. It's almost like after the neoliberals took over in the mid-70s they "burned the boats" so there was no way back to what the country was; a more vivid way of saying "hysteresis," I suppose.

notabanker , August 20, 2019 at 7:56 am

$33K if you stay five years, how friggin generous. I wonder, how much is "your friend" pulling down shuttling between US and China? I'll bet it's a lot closer to $330K than $33K.

$12 an hour is a joke and you will get what you pay for. "Flyover" country or not, but I suppose the distinction is important to bigots that want to mentally justify exploiting the class.

I know plenty of people that bust their ass in multiple jobs for not much more than your "friends" generous $12 an hour and they are hardly "dumb as rocks". Maybe "your friend" needs to look at his recruiting skills.

Peon , August 20, 2019 at 9:14 am

My rural neighbors and friends in southern Michigan are these $12 hour workers your friend references. Did your friend mention "mandatory overtime"? or "zero hours"?. What this means is when you go to your job at 7am you may be sent home at 9 (they have to pay you for 2hours during which you clean the plant), or at 2pm when your shift ends in an hour they let you know they want you to stay until 5. Forget a weekend, you find out on Friday if you have to work Saturday, on Saturday you find out about Sunday. I have friends that have worked 74 days in a row with no day off, then they are on temporary shutdown for 20 day (unpaid of course!) while the plant re-tools or absorbs unsold inventory. Your work week is driven by the whims and profits of the the corporation.
There is no security in these jobs, not weekly, monthly and certainly not as a career. The factory may close or re-locate abruptly due to the some corporate buy-out, merger, or re-location to a more lucrative tax-free/low labor pay location. Sometimes the physical location in your little town re-opens with a new name, new owner, usually lower pay, but always the same insecure employment story.
These are not jobs you would encourage your children to take on as a career, jobs you build families and buy homes with.

Ptb , August 20, 2019 at 2:38 pm

I've designed and installed measurement/control equipment in exactly the type of US facility this commenter is describing. The reason the applicants are "dumb as rocks" is that the company culture drives all others away. Why go to a sh#tty factory with no windows, weird hours, and an obnoxious tailorist environment, when you could get paid the same or more at a car shop (even just the guy/ gal washing the cars) or a construction (even just a laborer). The bottom level of factory work in the US sucks. Hiring managers know anyone who is worth anything will quit in a month or two so they set up the process to subtly screen for people that will stay (i.e. already had the self esteem wrung out of them by previous experiences). Techs have it a bit better, since they actually have a path up the ladder that isn't a lie. But the environment is deeply depressing, like a bad stereotype of the 1930s. I honestly hate going to US factories.

Inode_buddha , August 20, 2019 at 8:34 pm

If you fish on the bottom, you catch bottom fish. What's the problem? $12/hr maybe OK for college kids looking for a summer job; for me its a slap in the face. 30 yrs millwright/welder/fabrication and machining. 3 trade schools at own expense; own tools. No drugs whatsoever, ever. You want people to be professionals you have to treat them like that, and that begins with the pay package. Maybe your friend needs to be told this, verbatim.

The Rev Kev , August 20, 2019 at 12:05 am

Thinking over Lambert's last paragraph, can the economic system that got us into this mess also be capable of getting us out of it? Well, no. There are too many vested interests and too many salaries (note that I did not say wages) that are depending on the current system continuing – which it can't.

Lambert Strether Post author , August 20, 2019 at 7:37 am

What Warren's "Economic Patriotism" does not attack. People have a rough idea what "revolution" means. They have no idea at all what "big structural change" means. I suppose if we swapped in "hope and" for "big structural" we'd have an idea of what she's getting at.

Left in Wisconsin , August 20, 2019 at 12:49 am

Lambert: this is a great post but I fear you are only scratching the surface. In addition to what you cover, I would add, off the top of my head:
1. If the data were to go back to the mid-70s, you would see substantially higher numbers for firms and employees in tooling industries than in 2002. The decline since 2002 is just a fraction of the skill and talent we have lost.
2. US multinationals, real manufacturers or virtual manufacturers like Apple, are simply not interested in re-shoring. There is no convincing cost-benefit argument. You might be able to show a company that they could make boatloads of money by building a new facility in the US but they would (rightly) tell you that, if that were truly the case, they could make MORE boatloads by building it in Mexico or China. Trump can bluster all he wants but the real problem is that US manufacturing is not cost-competitive in a free-trade environment.
3. Which gets to the larger point. The great thing about manufacturing is that anyone, with training and experience, can get good at it with (enough of) the right investment in tooling, training, and experience. Adam Smith could already see 250 years ago, before there ever was big-time manufacturing, that machinery changed everything – substantially more output with substantially less skilled labor. That has been the story for the last 250 years. (John Commons wrote a great piece 100 years ago on shoemaking – search Philadelphia Cordwainers – that showed how in this industry there was a constant dance of expansion of market, new technology, deskilling, and relocation of work in search of lower cost labor. Jefferson Cowie wrote a modern version about RCA more recently but exactly the same story.)
I was at the UAW when work started moving to Mexico in a big way. There was a lot of bluster about the fact that "they" were not going to be able to do the work, and for many years there was a lot of truth to that. But with enough time and investment, of course eventually they could. (Modularization of work comes in here, too, as it is a good way to incrementally shift work to lower wage locations as skill levels grow.) I see no evidence that there aren't many firms in China that can do technical work at the highest level, even if the "average" level of work is much lower, with wages and working conditions much lower than you could get away with in this country.
The conclusion can only be that globalization invariably leads to a race to the bottom. It has to. (Even in Germany, wages haven't grown with productivity, because even in Germany workers have no "hand," as George Costanza would say.) This is why I hate Dean Baker's argument that the solution is to subject doctors and lawyers to the same degree of global competition as manufacturing workers face. It is true that costs would come down but in a further race to the bottom. It's no solution, it's just spreading the misery.
This is why I'm a socialist.

Lambert Strether Post author , August 20, 2019 at 7:20 am

> globalization invariably leads to a race to the bottom. It has to.

That's not a bug.

> I hate Dean Baker's argument that the solution is to subject doctors and lawyers to the same degree of global competition as manufacturing workers face.

True, but the professionals might have a "come to Jesus" movement that would obviate the need to pass such a bill.

ambrit , August 20, 2019 at 9:58 am

We have seen a lot of "foreign" medical 'professionals' in our meanderings through the American Medical Complex these last three years. An oncologist from Delhi, India, a plastic surgeon from Karachi, Pakistan, a research oncologist from Cracow, Poland, a Registered Nurse from Brazil, etc. etc. These people are working and living here in America in pursuit of the Gold Ring. (One Ring of Gold to rule them all.)
Until America institutes a National Health Service and caps medical professional salaries, nothing will change.
The main problem is structural. To mangle an infamous statement from the Vietnam War: "We had to destroy the society to save it."

Inode_buddha , August 20, 2019 at 12:42 pm

I think those who make the decisions should face the consequences of those decisions. That would be -- executives. The fact that they can insulate themselves from negative consequences in the larger society is the only reason they get away with it. That, and the fact that its illegal to kill them.

I also believe the workers should control the means of production, preferrable by employee ownership and the use of credit unions.

@pe , August 20, 2019 at 1:06 am

Hysteresis and path dependencies are other ways of saying systems with memory.

Systems with memories are metastable, which means they don't have unique (or maybe even finite) sets of steady-state solutions, given the fundamental noise in the system.

In such systems, the law of large numbers is not valid.

Thus, most of orthodox economics is mathematically invalid, unless liquidity is turned up to the point that it is completely memoryless, responding only to the latest instantaneous event.

Such a system would destroy all memory bearing systems in it's path -- human beings are memory bearing systems.

vlade , August 20, 2019 at 3:29 am

The problem how I see it is that everyone was talking about how we before moved most investment from agri to manufacturing, we'd move it all from manufacturing to services.

The only problem with that is that it ignores a lot of history and worse yet, it would turn blind eye to some clear conclusions.

As in the above seemed to implicitly assume all service jobs would be better jobs than all manufacturing jobs. Which is not true, as you can't really compare tooling engineer (to take example from above) with a hairdresser.

As with any mass change, the majority of the service jobs created woudl be low-skill, low-paid ones. They would have to be, because there just would not be enough of people with the right skills (and aptitudes).

Yes, maybe evenutally shifting to the majority of jobs to service sectors is as unavoidable as shifting majority of jobs out of agri few hundreds of years ago. But still, would not it be better (for the society and the country) to do it gradually, via automation (as part of the capital investment cycle), than just moving manufacturing offshore to the cheapest-possible?

The problem here is not with the companies.Even if they have enlightened shareholders (hahahah. The amorphous mass that are the investment funds?) who are willing to take lower returns short/medium term to do the right thing, they may get destroyed by competition who has no such qualms.

If the government is a servant of the country, and not just the few lobbyist, then this is very clearly the task of the governmnet, making sure that it works out. Well, except the problem is, if you have a few short years election cycle, no-one cares more than slightly less than the cycle, because they want to get re-elected, and you don't get re-elected on the strength of the policies you implemented 20 years ago.

Another thing we need to acknowledge here is that while this all, in an international context, is not an entirely zero-sum game, it's a workable approximation. Because policies that will help Americans (or Europeans or others) will often hurt elsewhere.

There's no chance China would be now where it is w/o the massive offshoring to it. It's pretty night impossible for a lot of low-income countries to bootstrap themselves when facing a much more developed competition, that's just fact of life (the skills won't develop themselves, someone has to invest into them, and that won't happen if all you have is a poor internal market).

There can be a workable equilibrium between say the EU and the US. There cannot be a workable equilibrium between the US and the Africa (I'll use the US and Africa as examples, put in whatever you want) w/o the US giving up some of its wealth (=some of the wealth of its people).

But tbh, this is where the wealth distribution matters (and why it doesn't need to be a zero-sum game). If the internal US wealth distribution was different, leaving even a reasonable chunk on the table for Africa would not matter that much. It would still mean Africa was developing slower than with say Chinese-like policy (and single-midedness), but it would.

Of course then we run into a different problem. The current lifestyle of <1bln people in "first world countries" can't be really replicated across 8-9bln. But I'm getting so far away from the original problem that I'm not going to go there.

Lambert Strether Post author , August 20, 2019 at 7:17 am

> If the government is a servant of the country, and not just the few lobbyist, then this is very clearly the task of the governmnet, making sure that it works out. Well, except the problem is, if you have a few short years election cycle, no-one cares more than slightly less than the cycle, because they want to get re-elected, and you don't get re-elected on the strength of the policies you implemented 20 years ago.

Perhaps term-limiting the Presidency with the 22nd Amendment was a bad idea. One wonders, in any case, why the Democrats supported it, after FDR.

vlade , August 20, 2019 at 8:31 am

You do realise it may have given you three terms of Clinton, Obama? (and others)

Oh , August 20, 2019 at 5:35 pm

Bush II had four terms – Bush, Bush, Obama, Obama and now he's on his fifth! /s

eg , August 20, 2019 at 5:01 am

I would add capital controls and credit guidance to the toolbox.

Lambert Strether Post author , August 20, 2019 at 7:13 am

> I would add capital controls and credit guidance to the toolbox.

Credit guidance?

Phacops , August 20, 2019 at 8:15 am

I enjoyed my career in manufacturing, starting with my discovery of the Western Electric Statistical Quality Control Handbook and then learning to apply statistical analysis to manufacturing processes in pharmaceuticals. Alas, the FDA still favors compliance to regulation over skilled process design, optimization and control.

Anyway, thanks for the article. The US was the primary manufacturer of machine tools at the start of 1980 and now we are ranked seventh. We have lost this basis for manufacturing and along with that, we are at risk of losing entire generations of manufacturing expertise at all levels from product development and design to finished goods output.

While my coursework in college allowed me to work in technical manufacturing you alsu point out the bias that now exists against pursuing a career in manufacturing and wonder if the selling of higher education rather than training in skilled vocations like machining has fundamentally changed how we value manufacturing?

I can remember in the 60s where there were innumerable small machine shops around Detroit servicing the aerospace community during the ramp-up to Apollo. All gone now.

Ignacio , August 20, 2019 at 10:41 am

If Lambert lives in the past I am a buddhist monk. There are very few with such a wide view of present times.

David Carl Grimes , August 20, 2019 at 11:04 am

I'm curious as to what the growth was during the Obama years vs. the Trump years in both establishments and employment by NAICs code. Do you have a link? Your table goes from 2002 to 2018, but what about the years in between?

Based on the bls.gov data, manufacturing jobs only increased by 496K during Trump. That's not much. In fact, the trend line is very similar to Obama's.

Jon Rynn , August 20, 2019 at 11:20 am

Lambert, thanks for the analysis. I will note your last line,
"I'm not sure that's meaningful absent an actual industrial policy, democratically arrived at, and a mobilized population (which is what the Green New Deal ought to do)."

That is exactly what my Green New Deal Plan is designed to do. My mentor was the late Professor Seymour Melman, who was one of the world's top experts on the machine tool industry, and who warned as far back as 1988 in a book called 'the demilitarized society' that the U.S. was at the 'point of no return' exactly because the industrial machinery industries were in such bad shape. In fact, he felt that it was not possible for these industries to regenerate by themselves, thus the point of no return, so they needed help from the government to revive, and there needed to be large scale importing of engineering talent from what I would call more advanced countries to 'train the natives', as he put it (not sure if that is pc at this point). (If anyone is interested, I posted a description of Seymour's work at NakedCapitalism , )

Tim Cook's comments have been chilling because he is pointing out the systemic nature of a manufacturing base, like a forest if it gets too small, the whole thing effectively collapses. At this point, it seems to me, the U.S. can only 'bring back manufacturing' by engaging in huge public works projects, require domestic content, and help companies produce the associated parts and equipment. It would be especially important to require, after a few years, that the machinery be produced in the U.S. This is the sort of thing the Chinese do in their sleep, but most of the elite have been living in Reagan's brain for so long they forgot they can use the Federal government for nation building. I tried to counter some of the myths of manufacturing , as I put it, in my book "Manufacturing Green Prosperity"

Left in Wisconsin , August 20, 2019 at 12:50 pm

What do you do when the finance-types in control of all these firms say, "No thanks"? Tim Cook complains that the skill base isn't here – which by now it might not be – but the real driver is lower labor costs elsewhere. Guaranteed profits like in the MIC?

Jon Rynn , August 20, 2019 at 1:56 pm

Left in Wisconsin, thanks for replying. I think you need a form of national planning. not gosplan type, more like in the one to two trillion per year range, that the Feds directly spend -- I would advocate on a green new deal plan, for instance. That's not exactly guaranteed profits a la MIC, and a friend doesn't want me to use the word 'infrastructure industrial complex', but I think the Chinese did something rather similar, they planned the building of vast public works, and they knew that would provide a huge market for manufacturing firms. i think this sort of dynamic helped before in american history, think of encouraging rail in the 19th century or the public works in the new deal. i wrote about this in American Prospect . If you have 'domestic content' laws for all the parts being used for the public works, then you don't have to worry about lower wages overseas. It's absolutely necessary that the Green New Deal people put that in their language, I don't know if they will

Left in Wisconsin , August 20, 2019 at 3:16 pm

Is "domestic content" still legal under WTO? Just trying to figure out how far from here to there. I have huge respect for Melman.

Jon Rynn , August 20, 2019 at 3:48 pm

My understanding is that GATT allowed for domestic content if it was for 'general infrastructure'. Don't know about WTO, but it may be the same, I remember having a conversation with someone about this in 2008 so maybe it is WTO. Judging by what Trump is getting away with, maybe all you have to do is declare something a matter of 'national security' .but frankly I don't know. What the US, during Obama's administration, did to India, which was trying to use domestic content to build their solar industry, is unconscienable (sp) then India sued back when several US states tried to do the same thing. Clearly if there was support for a green new deal, there would be support enough to tell the WTO to go to hell, or what would probably happen, the WTO rules would change with enough pressure

Andy Raushner , August 20, 2019 at 3:48 pm

Sorry, but manufacturing has been in recession this year Lambert. Be aware the tied of revisions. From a pratical pov, Obama or Trump doesn't matter. But due to massive junk bond allocations and imo exhausted heavy manufacturing companies, they are in trouble going forward.

China itself is overrated right now as well. This board lives in denial on this issue.

[Aug 20, 2019] Is the So-Called Manufacturing Renaissance a Mirage

Without suppression of Wall Street speculators the renaissance on manufacturing is impossible...
Notable quotes:
"... A tooling firm closes, and a complex organism withers. The machinery is sold, sent to the scrapyard, or rusts in place. The manuals are tossed. The managers retire and the workers disperse, taking their skills and knowledge with them. The bowling alley closes. The houses sell at a loss, or won’t see at all. Others, no doubt offshore, get the contracts, the customers, and the knowledge flow that goes with all that. All this causes hysteresis. “The impact of past experience on subsequent performance” cannot be undone simply by helicoptering a new plant in place and offering some tax incentives! To begin with, why would the workers come back? ..."
Aug 20, 2019 | www.nakedcapitalism.com

If I lived in the past, I might assume that re-industrialization would be as easy as building a new plant and plopping it down in my model town; "build it and they will come." But this America is not that America. Things aren't that frictionless. They are not, because of a concept that comes with the seventy five-cent word hysteresis attached, covered here in 2015. Martin Wolf wrote :

"Hysteresis" -- the impact of past experience on subsequent performance -- is very powerful. Possible causes of hysteresis include: the effect of prolonged joblessness on employability; slowdowns in investment; declines in the capacity of the financial sector to support innovation; and a pervasive loss of animal spirits.

(To "loss of animal spirits" in the entrepreneurial classes we might add "deaths of despair" in the working class.) And if there were a lot of people like me, living in the past -- in a world of illusion -- that too would would cause hysteresis, because we would make good choices, whether for individual careers, at the investment level, or at the policy level, only at random.

Our current discourse on a manufacturing renaissance is marked by a failure to take hysteresis into account. First, I'm select some representative voices from the discourse. Then, I will present a bracing article from Industry Week, " Is US Manufacturing Losing Its Toolbox? " I'll conclude by merely alluding to some remedies. (I'm sure there's a post to be written comparing the policy positions of all the candidate on manufacturing in detail, but this is not that post.)

The first voice: Donald Trump. From " 'We're Finally Rebuilding Our Country': President Trump Addresses National Electrical Contractors Association Convention " (2018):

"We're in the midst of a manufacturing renaissance -- something which nobody thought you'd hear," Trump said. "We're finally rebuilding our country, and we are doing it with American aluminum, American steel and with our great electrical contractors," said Trump, adding that the original NAFTA deal "stole our dignity as a country."

The second voice: Elizabeth Warren. From " The Coming Economic Crash -- And How to Stop It " (2019):

Despite Trump's promises of a manufacturing "renaissance," the country is now in a manufacturing recession . The Federal Reserve just reported that the manufacturing sector had a second straight quarter of decline, falling below Wall Street's expectations. And for the first time ever , the average hourly wage for manufacturing workers has dropped below the national average.

(One might quibble that a manufacturing renaissance is not immune from the business cycle .) A fourth voice: Trump campaign surrogate David Urban, " Trump has kept his promise to revive manufacturing " (2019):

Amazingly, under Trump, America has experienced a 2½-year manufacturing jobs boom. More Americans are now employed in well-paying manufacturing positions than before the Great Recession. The miracle hasn't slowed. The latest jobs report continues to show robust manufacturing growth, with manufacturing job creation beating economists' expectations, adding the most jobs since January.

Obviously, the rebound in American manufacturing didn't happen magically; it came from Trump following through on his campaign promises -- paring back job-killing regulations, cutting taxes on businesses and middle-class taxpayers, and implementing trade policies that protect American workers from foreign trade cheaters.

Then again, from the New York Times, " Trump Promised a Manufacturing Renaissance. What Happens in 2020 in Places That Lost Those Jobs ?" (2019):

But nothing has reversed the decline of the county's manufacturing base. From January 2017 to December 2018, it lost nearly 9 percent of its manufacturing jobs, and 17 other counties in Michigan that Mr. Trump carried have experienced similar losses, according to a newly updated analysis of employment data by the Brookings Institution.

Perhaps the best reality check -- beyond looking at our operational capacity, as we are about to do -- is to check what the people who will be called upon to do the work might think. From Industry Week, " Many Parents Undervalue Manufacturing as a Career for Their Children " (2018):

A mere 20% of parents associate desirable pay with a career in manufacturing, while research shows manufacturing workers actually earn 13%more than comparable workers in other industries.

If there were a manufacturing renaissance, then parents' expectations salaries would be more in line with reality (in other words, they exhibit hysteresis).

Another good reality check is what we can actually do (our operational capacity). Here is Tim Cook explaining why Apple ended up not manufacturing in the United States ( from J-LS's post ). From Inc. :

[TIM COOK;] "The products we do require really advanced tooling, and the precision that you have to have, the tooling and working with the materials that we do are state of the art. And the tooling skill is very deep here. In the US you could have a meeting of tooling engineers and I'm not sure we could fill the room. In China you could fill multiple football fields.

"The vocational expertise is very very deep here, and I give the education system a lot of credit for continuing to push on that even when others were de-emphasizing vocational. Now I think many countries in the world have woke up and said this is a key thing and we've got to correct that. China called that right from the beginning."

With Cook's views in mind, let's turn to the slap of cold water administered by Michael Collins in Industry Week, " Is US Manufacturing Losing Its Toolbox? ":

So are we really in the long-hoped-for manufacturing renaissance? The agency with the most accurate predictions on the future of jobs is the Bureau of Labor Statistics. Their projection to 2026 shows that US manufacturing sector will lose 736,000 manufacturing jobs. I spoke with BLS economists James Franklin and Kathleen Greene, who made the projections, and they were unwavering in their conclusion for a decline of manufacturing jobs.

This prompted me to look deeper into the renaissance idea, so I investigated the changes in employment and establishments in 38 manufacturing North American Industry Classification System (NAICS) industries from 2002 to 2018. I really hoped that the optimists were right about the manufacturing renaissance, but the data I collected in Table 1 (see link) shows some inconvenient truths -- that 37 out of the 38 manufacturing industries are declining in terms of both number of plants and employees.

So, yeah. Mirage.

... ... ...

A tooling firm closes, and a complex organism withers. The machinery is sold, sent to the scrapyard, or rusts in place. The manuals are tossed. The managers retire and the workers disperse, taking their skills and knowledge with them. The bowling alley closes. The houses sell at a loss, or won’t see at all. Others, no doubt offshore, get the contracts, the customers, and the knowledge flow that goes with all that. All this causes hysteresis. “The impact of past experience on subsequent performance” cannot be undone simply by helicoptering a new plant in place and offering some tax incentives! To begin with, why would the workers come back?

So, when I see no doubt well-meant plans like Warren’s “Economic Patriotism” — and not to pick on Warren — I’m skeptical. I’m not sure it’s enough. Here are her bullet points:

There’s a lot to like here, but will these efforts really solve the hysteresis that’s causing our tooling problem? Just spit-balling here, but I’d think about doing more. Start with the perspective that our tooling must be, as much as possible, domestic. (“If your business depends on a platform, you don’t have a business.” Similarly, if your industrial base depends on the tooling of others, it’s not an industrial base.)

As tooling ramps up, our costs will be higher. Therefore, consider tariff walls, as used by other developing nations when they industrialized. Apprenticeships and training are good, but why not consider skills-based immigration that brings in the worker we’d otherwise have to wait to train?

Further, simply “training” workers and then having MBAs run the firms is a recipe for disaster; management needs to be provided, too.

Finally, something needs to be done to bring the best and brightest into manufacturing, as opposed to having them work on Wall Street, or devise software that cheats customers with dark patterns. It’s simply not clear to me that a market-based solution — again, not to pick on her — like Warren’s (“sustainable investments,” “research investments,” “R&D investments,” “export promotion,” and “purchasing power”) meets the case.

It is true that Warren also advocates a Department of Economic Development “that will have a single goal: creating and defending good American jobs.” I’m not sure that’s meaningful absent an actual industrial policy, democratically arrived at, and a mobilized population (which is what the Green New Deal ought to do).

[Aug 20, 2019] Looks like in Trump mind the value of Dow and S P500 stock indexes is equivalent to the level of health of the US economy

This is the psychology of a huckster...
Notable quotes:
"... Trump Panicked As Stocks Fell, Called Top 3 Bank CEOs ..."
"... As The Dow dropped 800 points, the 4th largest point drop in history, Bloomberg reports that Trump held a conference call with three of Wall Street's top executives - JPMorgan Chase & Co.'s Jamie Dimon, Bank of America Corp.'s Brian Moynihanand Citigroup Inc.'s Michael Corbat. ..."
"... No draining of the swamp..has actually added with lunatic Bolton and Pompous. His winning BIGLY on his trade wars have done nothing but destroy American farmer and retail closings in record numbe ..."
"... What he called a big fat bubble in the fraud market when a candidate is now his bubble of hope to a second term. We won't even get into his Israeli foreign policy which are in violation of international law not to mention war crimes. ..."
"... Trump is making a HUGE mistake! His equating Wall Street profits with Main Street health will sink his chances for 2020. ..."
"... The American people are not stupid - they see that all the cheap money is flowing directly into the CEOs' pockets of all the major corporations with a stream of never-ending buy-back opportunities. ..."
"... I don't care for anybody in our current political establishment, Republican or Democrat, so I don't give an iota if Trump is re-elected. ..."
"... The man was born and raised in The Great Swamp, somewhere near Pennsylvania Avenue, if you know what I mean. ..."
"... So???? Why bankers? Why not tractor supply companies or steel makers? Bankers, markets, Trump, what is the connection, what can bankers do? ..."
"... Like calling the foxes to fix a missing chicken problem? Or telling the foxes to lay off the chickens? ..."
"... Back in 2008, the word was that money laundering from drug kingpins was what avoided an even worse monetary collapse. So, are they making sure everything is in place should economic turmoil necessitate a repeat performance? https://www.theguardian.com/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims ..."
"... The "plunge protection team" was used by Obama too after the markets got volatile, and last December by Trump. https://www.zerohedge.com/news/2018-02-07/paul-craig-roberts-exposes-plunge-protection-teams-fraud ..."
Aug 16, 2019 | www.zerohedge.com

Trump Panicked As Stocks Fell, Called Top 3 Bank CEOs

"When it's serious, you have to lie... or call the CEOs of the nation's biggest banks."

Amid the drop in US equity markets on Wednesday - culminating in a 'Markets In Turmoil' special on CNBC - President Trump appears to have hit the panic button and grabbed the big red Plunge Protection Team bat-phone.

As The Dow dropped 800 points, the 4th largest point drop in history, Bloomberg reports that Trump held a conference call with three of Wall Street's top executives - JPMorgan Chase & Co.'s Jamie Dimon, Bank of America Corp.'s Brian Moynihanand Citigroup Inc.'s Michael Corbat.

The three chief executives were in Washington for a previously scheduled meeting with Treasury Secretary Steven Mnuchin on banking secrecy and money laundering, according to people familiar with the matter. On a conference call, they briefed the president, who was at his resort in Bedminster, New Jersey.

So Trump panicked with stocks a mere 5% below all-time-highs? What happens when we enter a bear market?


tobagocat , 3 minutes ago link

All you always Trumper's are just as bad as the lunatic left never Trumper's..refusing to see what's directly in front of you....a loud mouth Orange *** puppet who in the big picture has accomplished very little of the promises he had made as a candidate.

No draining of the swamp..has actually added with lunatic Bolton and Pompous. His winning BIGLY on his trade wars have done nothing but destroy American farmer and retail closings in record number.

What he called a big fat bubble in the fraud market when a candidate is now his bubble of hope to a second term. We won't even get into his Israeli foreign policy which are in violation of international law not to mention war crimes.

Face it always Trumper's...the Orange *** is a failed President and his name will be mentioned with the likes the Clinton's and Bushes ..fitting since none of those went to jail...another failed promise

Xingqiwu , 22 minutes ago link

Trump is making a HUGE mistake! His equating Wall Street profits with Main Street health will sink his chances for 2020.

The American people are not stupid - they see that all the cheap money is flowing directly into the CEOs' pockets of all the major corporations with a stream of never-ending buy-back opportunities.

Charlie_Martel , 14 minutes ago link

I bet you think the $26 trillion in bailouts went to " Hope & Change."

MrNoItAll , 23 minutes ago link

Bloomberg wouldn't know that Trump called the three banking CEOs on a conference all unless Trump's handlers wanted Bloomberg to know. This is a propaganda event intended to assure the "investing community" that Trump really does care about the stock market, that he is fixated on it and will do "whatever it takes" to keep the stock market from falling... too far.

In this time of great economic turmoil and with grim reality creeping ever closer through the fog of lies and propaganda that keep people thinking "all is well", the elites who really run things need to keep "investors" reassured, all in, and OUT of precious metals.

Todosqueremosmas , 19 minutes ago link

Why would he want to end the Fed when he is one of its primary beneficiaries???? I don't care for anybody in our current political establishment, Republican or Democrat, so I don't give an iota if Trump is re-elected.

But to believe that he will do anything to benefit the American citizenry at large by doing something such as ending the Fed is the epitome of naïveté. He couldn't care a rat's *** about you or I. The man was born and raised in The Great Swamp, somewhere near Pennsylvania Avenue, if you know what I mean.

two hoots , 34 minutes ago link

So???? Why bankers? Why not tractor supply companies or steel makers? Bankers, markets, Trump, what is the connection, what can bankers do?

conraddobler , 34 minutes ago link

Like calling the foxes to fix a missing chicken problem? Or telling the foxes to lay off the chickens?

Hmmm hard to say but time will tell although it's hard to see time as an ally here.

In the fullness of time God is on the job so it's all good, it's all for the edification of souls everywhere some just take to learning quicker than others.

rwe2late , 42 minutes ago link

"The three chief executives were in Washington for a previously scheduled meeting with Treasury Secretary Steven Mnuchin on banking secrecy and money laundering ..."

Back in 2008, the word was that money laundering from drug kingpins was what avoided an even worse monetary collapse. So, are they making sure everything is in place should economic turmoil necessitate a repeat performance? https://www.theguardian.com/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims

T.Gracchus , 43 minutes ago link

Trump is a ******* moron, hanging his presidency on the fragile and fickle world of stock prices. When they fall, he will fall too.

Thalamus , 44 minutes ago link

The "plunge protection team" was used by Obama too after the markets got volatile, and last December by Trump. https://www.zerohedge.com/news/2018-02-07/paul-craig-roberts-exposes-plunge-protection-teams-fraud

[Aug 20, 2019] Trump Promised Massive Infrastructure Projects -- Instead We ve Gotten Nothing>

Highly recommended!
Notable quotes:
"... So far, that wager has netted Americans nothing. No money. No deal. No bridges, roads or leadless water pipes. And there's nothing on the horizon since Trump stormed out of the most recent meeting. That was a three-minute session in May with Democratic leaders at which Trump was supposed to discuss the $2 trillion he had proposed earlier to spend on infrastructure. In a press conference immediately afterward, Trump said if the Democrats continued to investigate him, he would refuse to keep his promises to the American people to repair the nation's infrastructure. ..."
"... Candidate Donald Trump knew it was no joke. On the campaign trail, he said U.S. infrastructure was "a mess" and no better than that of a "third-world country. " When an Amtrak train derailed in Philadelphia in 2015, killing eight and injuring about 200 , he tweeted , "Our roads, airports, tunnels, bridges, electric grid -- all falling apart." Later, he tweeted , "The only one to fix the infrastructure of our country is me." ..."
"... Donald Trump promised to make America great again. And that wouldn't be possible if America's rail system, locks, dams and pipelines -- that is, its vital organs -- were "a mess." Trump signed what he described as a contract with American voters to deliver an infrastructure plan within the first 100 days of his administration. ..."
"... He mocked his Democratic opponent Hillary Clinton's proposal to spend $275 billion. "Her number is a fraction of what we're talking about. We need much more money to rebuild our infrastructure," he told Fox News in 2016 . "I would say at least double her numbers, and you're going to really need a lot more than that." ..."
"... In August of 2016, he promised , "We will build the next generation of roads, bridges, railways, tunnels, seaports and airports that our country deserves. American cars will travel the roads, American planes will connect our cities, and American ships will patrol the seas. American steel will send new skyscrapers soaring. We will put new American metal into the spine of this nation." ..."
"... That contract Trump signed with American voters to produce an infrastructure plan in the first 100 days: worthless. It never happened. He gave Americans an Infrastructure Week in June of 2017, though, and at just about the 100-day mark, predicted infrastructure spending would "take off like a rocket ship." Two more Infrastructure Weeks followed in the next two years, but no money. ..."
"... This year, by which time the words Infrastructure Week had become a synonym for promises not kept, Trump met on April 30 with top Democratic leaders and recommended a $2 trillion infrastructure investment. Democrats praised Trump afterward for taking the challenge seriously and for agreeing to find the money. ..."
"... Almost immediately, Trump began complaining that Democrats were trying to hoodwink him into raising taxes to pay for the $2 trillion he had offered to spend. ..."
"... Trump and the Republicans relinquished one way to pay for infrastructure when they passed a tax cut for the rich and corporations in December of 2017. As a result, the rich and corporations pocketed hundreds of billions -- $1 trillion over 10 years -- and Trump doesn't have that money to invest in infrastructure. Corporations spent their tax break money on stock buybacks, further enriching the already rich. They didn't invest in American manufacturing or worker training or wage increases. ..."
"... I have seen this movie before. A State builds a highway, it then leases that highway to a corporation for a bucket of cash which it uses to bribe the electorate to win the next election or two. The corporation shoves brand new toll booths on the highway charging sky high rates which puts a crimp in local economic activity. After the lease is up after twenty years, the State gets to take over the highway again to find that the corporation cut back on maintenance so that the whole highway has to be rebuilt again. Rinse and repeat. ..."
"... Promises by any narcissist mean nothing. You cannot hang your hat on any word that Trump speaks, because it's not about you or anyone else, but about him and only him. ..."
"... Here is a heads up. If any infrastructure is done it will be airports. The elite fly and couldn't give a crap about the suspension and wheel destroying potholes we have to slalom around every day. They also don't care that the great unwashed waste thousands of hours stuck in traffic when a bridge is closed or collapses. ..."
Jul 26, 2019 | www.nakedcapitalism.com

Yves here. In a bit of synchronicity, when a reader was graciously driving me to the Department of Motor Vehicles (a schlepp in the wilds of Shelby County), she mentioned she'd heard local media reports that trucks had had their weight limits lowered due to concern that some overpasses might not be able to handle the loads. Of course, a big reason infrastructure spending has plunged in the US is that it's become an excuse for "public-private partnerships," aka looting, when those deals take longer to get done and produce bad results so often that locals can sometimes block them.

By Tom Conway, the international president of the United Steelworkers Union (USW) . Produced by the Independent Media Institute

Bad news about infrastructure is as ubiquitous as potholes. Failures in a 108-year-old railroad bridge and tunnel cost New York commuters thousands of hours in delays. Illinois doesn't regularly inspect , let alone fix, decaying bridges. Flooding in Nebraska caused nearly half a billion dollars in road and bridge damage -- just this year.

No problem, though. President Donald Trump promised to fix all this. The great dealmaker, the builder of eponymous buildings, the star of "The Apprentice," Donald Trump, during his campaign, urged Americans to bet on him because he'd double what his opponent would spend on infrastructure. Double, he pledged!

So far, that wager has netted Americans nothing. No money. No deal. No bridges, roads or leadless water pipes. And there's nothing on the horizon since Trump stormed out of the most recent meeting. That was a three-minute session in May with Democratic leaders at which Trump was supposed to discuss the $2 trillion he had proposed earlier to spend on infrastructure. In a press conference immediately afterward, Trump said if the Democrats continued to investigate him, he would refuse to keep his promises to the American people to repair the nation's infrastructure.

The comedian Stephen Colbert described the situation best, saying Trump told the Democrats: "It's my way or no highways."

The situation, however, is no joke. Just ask the New York rail commuters held up for more than 2,000 hours over the past four years by bridge and tunnel breakdowns. Just ask the American Society of Civil Engineers , which gave the nation a D+ grade for infrastructure and estimated that if more than $1 trillion is not added to currently anticipated spending on infrastructure, "the economy is expected to lose almost $4 trillion in GDP , resulting in a loss of 2.5 million jobs in 2025."

Candidate Donald Trump knew it was no joke. On the campaign trail, he said U.S. infrastructure was "a mess" and no better than that of a "third-world country. " When an Amtrak train derailed in Philadelphia in 2015, killing eight and injuring about 200 , he tweeted , "Our roads, airports, tunnels, bridges, electric grid -- all falling apart." Later, he tweeted , "The only one to fix the infrastructure of our country is me."

Donald Trump promised to make America great again. And that wouldn't be possible if America's rail system, locks, dams and pipelines -- that is, its vital organs -- were "a mess." Trump signed what he described as a contract with American voters to deliver an infrastructure plan within the first 100 days of his administration.

He mocked his Democratic opponent Hillary Clinton's proposal to spend $275 billion. "Her number is a fraction of what we're talking about. We need much more money to rebuild our infrastructure," he told Fox News in 2016 . "I would say at least double her numbers, and you're going to really need a lot more than that."

In August of 2016, he promised , "We will build the next generation of roads, bridges, railways, tunnels, seaports and airports that our country deserves. American cars will travel the roads, American planes will connect our cities, and American ships will patrol the seas. American steel will send new skyscrapers soaring. We will put new American metal into the spine of this nation."

In his victory speech and both of his State of the Union addresses, he pledged again to be the master of infrastructure. "We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, school, hospitals. And we will put millions of our people to work," he said the night he won.

That sounds excellent. That's exactly what 75 percent of respondents to a Gallup poll said they wanted. That would create millions of family-supporting jobs making the steel, aluminum, concrete, pipes and construction vehicles necessary to accomplish infrastructure repair. That would stimulate the economy in ways that benefit the middle class and those who are struggling.

That contract Trump signed with American voters to produce an infrastructure plan in the first 100 days: worthless. It never happened. He gave Americans an Infrastructure Week in June of 2017, though, and at just about the 100-day mark, predicted infrastructure spending would "take off like a rocket ship." Two more Infrastructure Weeks followed in the next two years, but no money.

Trump finally announced a plan in February of 2018 , at a little over the 365-day mark, to spend $1.5 trillion on infrastructure. It went nowhere because it managed to annoy both Democrats and Republicans.

It was to be funded by only $200 billion in federal dollars -- less than what Hillary Clinton proposed. The rest was to come from state and local governments and from foreign money interests and the private sector. Basically, the idea was to hand over to hedge fund managers the roads and bridges and pipelines originally built, owned and maintained by Americans. The fat cats at the hedge funds would pay for repairs but then toll the assets in perpetuity. Nobody liked it.

That was last year. This year, by which time the words Infrastructure Week had become a synonym for promises not kept, Trump met on April 30 with top Democratic leaders and recommended a $2 trillion infrastructure investment. Democrats praised Trump afterward for taking the challenge seriously and for agreeing to find the money.

"It couldn't have gone any better," Ways and Means Committee Chairman Richard E. Neal , D-Mass., told the Washington Post, even though Neal was investigating Trump for possible tax fraud.

Almost immediately, Trump began complaining that Democrats were trying to hoodwink him into raising taxes to pay for the $2 trillion he had offered to spend.

Trump and the Republicans relinquished one way to pay for infrastructure when they passed a tax cut for the rich and corporations in December of 2017. As a result, the rich and corporations pocketed hundreds of billions -- $1 trillion over 10 years -- and Trump doesn't have that money to invest in infrastructure. Corporations spent their tax break money on stock buybacks, further enriching the already rich. They didn't invest in American manufacturing or worker training or wage increases.

Three weeks after the April 30 meeting, Trump snubbed Democrats who returned to the White House hoping the president had found a way to keep his promise to raise $2 trillion for infrastructure. Trump dismissed them like naughty schoolchildren. He told them he wouldn't countenance Democrats simultaneously investigating him and bargaining with him -- even though Democrats were investigating him at the time of the April meeting and one of the investigators -- Neal -- had attended.

Promise not kept again.

Trump's reelection motto, Keep America Great, doesn't work for infrastructure. It's still a mess. It's the third year of his presidency, and he has done nothing about it. Apparently, he's saving this pledge for his next term.

In May, he promised Louisianans a new bridge over Interstate 10 -- only if he is reelected. He said the administration would have it ready to go on "day one, right after the election." Just like he said he'd produce an infrastructure plan within the first 100 days of his first term.

He's doubling down on the infrastructure promises. His win would mean Americans get nothing again.

Arizona Slim , July 26, 2019 at 6:26 am

Paging Bernie Sanders: You need to be all over this Trump-fail. And sooner, rather than later.

The Rev Kev , July 26, 2019 at 6:40 am

The whole thing seems so stupid. The desperate need is there, the people are there to do the work, the money spent into the infrastructure would give a major boost to the real economy, the completed infrastructure would give the real economy a boost for years & decades to come – it is win-win right across the board. But the whole thing is stalled because the whole deal can't be rigged to give a bunch of hedge fund managers control of that infrastructure afterwards. If it did, the constant rents that Americans would have to pay to use this infrastructure would bleed the economy for decades to come.

I have seen this movie before. A State builds a highway, it then leases that highway to a corporation for a bucket of cash which it uses to bribe the electorate to win the next election or two. The corporation shoves brand new toll booths on the highway charging sky high rates which puts a crimp in local economic activity. After the lease is up after twenty years, the State gets to take over the highway again to find that the corporation cut back on maintenance so that the whole highway has to be rebuilt again. Rinse and repeat.

When President Dwight D. Eisenhower signed the Federal Aid Highway Act in 1956, can you imagine how history would have gone if they had been handed over to a bunch of corporations who would have built toll booths over the whole network? Would have done wonders for the American economy I bet.

Wukchumni , July 26, 2019 at 6:48 am

One of the things discussed at our town hall meeting the other night, was a much needed $481k public bathroom, and that was the low bid.

It has to be ADA compliant with ramps, etc.

$48,100 seems like it'd be plenty to get 'r done, as you can build a house with a couple of bathrooms, and a few bedrooms, a kitchen and living room for maybe $200k.

Ignacio , July 26, 2019 at 8:58 am

And if toll revenues don't come as high as expected, mother state will come to the rescue of those poor fund managers. I find it amazing that Trump uses the stupid Russia, Russia, Russia! fixation of democrats as an excuse to do nothing about infrastructure. Does this work with his electorate?

cnchal , July 26, 2019 at 7:09 am

Tom, grow up.

Promises by any narcissist mean nothing. You cannot hang your hat on any word that Trump speaks, because it's not about you or anyone else, but about him and only him.

Here is a heads up. If any infrastructure is done it will be airports. The elite fly and couldn't give a crap about the suspension and wheel destroying potholes we have to slalom around every day. They also don't care that the great unwashed waste thousands of hours stuck in traffic when a bridge is closed or collapses.

Carla , July 26, 2019 at 7:47 am

Well, fix the airports and you've still got Boeing, self-destructing as fast as it can. And Airbus can't fill all the orders no matter how hard it tries. Guess everybody will just have to . stay home.

WheresOurTeddy , July 26, 2019 at 7:16 am

Are all the coal jobs back? How about the manufacturing? NAFTA been repealed and replaced with something better yet? How's the wall coming and has Mexico sent the check yet? Soldiers back from Afghanistan/Iraq/Syria yet?

Got that tax cut for rich people and a ton of conservative judges through though, didn't he?

Katniss Everdeen , July 26, 2019 at 8:17 am

"It couldn't have gone any better," Ways and Means Committee Chairman Richard E. Neal, D-Mass., told the Washington Post, even though Neal was investigating Trump for possible tax fraud.

What a surprise. It's simply "amazing" that the insane status quo jihad that has been waged against Trump since he announced his candidacy had real consequences for the country. Who would have thought that calling ANY president ignorant, ugly, fat, a liar, a traitor, a cheater, an agent of Putin, a racist, a misogynist, a xenophobe, a bigot, an isolationist and an illegitimate occupant of the White House 24/7 since he or she won the election would make actual accomplishment nearly impossible.

The mere mention of his name on college campuses has even been legitimized as a fear-inducing, "safety"-threatening "microagression."

It's just so rich that having determined to prevent Trump from doing absolutely anything he promised during the campaign by any and all means, regardless of what the promise was or how beneficial it may have been, his numerous, bilious "critics" now have the gonads to accuse him of not getting anything done.

With all due respect to the author of this piece, the result he laments was exactly the point of this relentless nightmare of Trump derangement to which the nation has been subjected for three years. I tend to think that the specific promise most targeted for destruction was his criticism of NATO and "infrastructure" was collateral damage, but that's neither here nor there.

The washington status quo has succeeded in its mission to cripple a president it could not defeat electorally, and now tries to blame him for their success. Cutting off your nose to spite your face has always been a counterproductive strategy.

[Aug 20, 2019] The Numbers Are In, and Trump's Tax Cuts Are a Bust>

Jul 17, 2019 | www.nakedcapitalism.com

By Marshall Auerback, a market analyst and commentator. Produced by Economy for All , a project of the Independent Media Institute

The most commonly heard refrain when Donald Trump and the GOP were seeking to pass some version of corporate tax reform went something like this : There are literally trillions of dollars trapped in offshore dollar deposits which, because of America's uncompetitive tax rates, cannot be brought back home. Cut the corporate tax rate and get those dollars repatriated, thereby unleashing a flood of new job-creating investment in the process. Or so the pitch went.

It's not new and has never really stood up to scrutiny. Yet virtually every single figure who lobbied for corporate tax reform has made a version of this argument. In the past, Congress couldn't or wouldn't take up the cause, but, desperate for a political win after the loss on health care, Trump and the GOP leadership ran with a recycled version of this argument, and Congress finally passed the Tax Cuts and Jobs Act on December 22, 2017. The headline feature was a cut in the official corporate tax rate from 35 percent to 21 percent.

So did reality correspond to the theoretical case made for the tax reform bill? We now have enough information to make a reasonably informed assessment. Unless you think that tax havens like Ireland, Bermuda or the Cayman Islands, all of which continue to feature as major foreign holders of U.S. Treasuries , have suddenly emerged as economic superpowers, the more realistic interpretation of the data shows the president's much-vaunted claims about the tax reform to be bogus on a number of levels. Even though some dollars have been "brought home," there remain trillions of dollars domiciled in these countries (at least in an accounting sense, which I'll discuss in a moment). If anything, the key provisions of the new legislation have given even greater incentives for U.S. corporations to shift production abroad, engage in yet more tax avoidance activities and thereby exacerbate prevailing economic inequality. Which, knowing Donald Trump, was probably the whole point in the first place.

This tax bill was constructed on a foundation of lies. To cite one obvious example, the real U.S. corporate tax rate has never been near the oft-cited 35 percent level. As recently as 2014, the Congressional Research Service estimated that the effective rate (the net rate paid after deductions and credits) was around 27.1 percent, which was well in line with America's international competitors.

But even the new and supposedly more competitive 21 percent rate has not been as advertised. As Brad Setser (a senior fellow at the Council on Foreign Relations) has illustrated , the new tax bill also included a provision that enabled "companies that shift their profits abroad to pay tax at a rate well below the already-reduced corporate income tax Why would any multinational corporation pay America's 21 percent tax rate when it could pay the new 'global minimum' rate of 10.5 percent on profits shifted to tax havens, particularly when there are few restrictions on how money can be moved around a company and its foreign subsidiaries?" The upshot, as Setser concludes , is that "the global distribution of corporations' offshore profits -- our best measure of their tax avoidance gymnastics -- hasn't budged from the prevailing trend."

Although this new 10.5 percent rate applies to "global intangibles," such as patents, trademarks, and copyrights, the legislation still creates incentives for companies (notably pharmaceuticals and high-tech companies) to shift investment in tangible assets as well (such as factories) in order to maximize the benefits of this global rate on intangibles.

Many anticipated this result at the time the new law was enacted. The legislation incentivizes increased offshore investment in real assets such as factories, because the more companies invest in these "tangibles" in offshore low tax jurisdictions such as Ireland, the easier it becomes to incur a "calculated minimum tax on your offshore intangible income (the patents and the like on a new drug, for example)," according to Setser . The effect is also to exacerbate the trade deficit. A $20 billion jump in the pharmaceutical trade deficit last year provides excellent evidence of this trend. Ironically, this works at variance with Trump's "America First" trade nationalism, and his concomitant efforts to wield the tariff weapon in order to disrupt global supply chains and get corporate America to re-domicile investment at home.

Parenthetically, a further political by-product has been to give the deficit hawks more political ammunition in their goal to cut supposedly "unsustainable" social welfare expenditures, perpetuating even greater economic inequality, on the grounds of insufficient tax revenues to "fund" these programs. That is another lie (see this New York Times op-ed by Stephanie Kelton to understand why).

As for the other bogus arguments used to justify this legislation, it is worth noting that most of dollars allegedly "trapped" overseas are in fact domiciled in the U.S. They have been classified as "offshore" purely for tax accounting purposes. Yves Smith of "Naked Capitalism," for example, has pointed out that Apple stored the dollars "related to its Irish sub in banks in the US and managed it out of an internal hedge fund in Arizona." Similarly, the Brookings Institute notes that American tax accounting rules do not place geographic restrictions on where those U.S. dollars are actually held, even if the Treasury data records them as "offshore" for tax purposes. Quite the contrary: "[T]he financial statements of the companies with large stocks of overseas earnings, like Apple, Microsoft, Cisco, Google, Oracle, or Merck show most of it is in U.S. treasuries, U.S. agency securities, U.S. mortgage backed securities, or U.S. dollar-denominated corporate notes and bonds." In other words, the dollars are "home" and invested in the U.S. financial system.

So in what ways are the dollars actually "trapped" (i.e., unavailable for domestic use without severe tax repercussions)? They have never been so in reality. Through financial engineering, the banks that have held the dollars "offshore" on behalf of these American multinationals have extended loans against the stockpile so as to "liberate" the capital to be used as the companies saw fit. It's a form of hypothecated lending . Not only has the resultant " synthetic cash repatriation " provided a nice margin for what are effectively risk-free loans, but it also has enabled the beneficiary companies to deploy the dollars within the U.S. while avoiding tax penalties.

But here's the key point: instead of investing in new plants and equipment, a large proportion of these dollars have instead been used for share buybacks or distributed back to shareholders via dividend payments . Anne Marie Knott of Forbes.com quantifies the totals : "For the first three quarters of 2018, buybacks were $583.4 billion (up 52.6% from 2017). In contrast, aggregate capital investment increased 8.8% over 2017, while R&D investment growth at US public companies increased 12.5% over 2017 growth." So the top tier again wins in all ways: net profits are fattened, shareholders get more cash, and CEO compensation is elevated, as the value of the stock prices goes higher via share buybacks.

The dollars, in other words, have only been "trapped" to the extent that corporate management has chosen not to deploy them to foster real economic activity. "Punitive" corporate tax rates, in other words, have been a fig leaf. But the American worker has derived no real benefit from this repatriation, which was the political premise used to sell the bill in the first place.

Since the passage of the tax bill, the data show no significant evidence of corporate America bringing back jobs or profits from abroad. In fact, there is much to suggest the opposite: namely, that tax avoidance is accelerating in the wake of the legislation's passage, rather than decreasing. Consider that the number of companies paying no taxes has gone from 30 to 60 since the bill's enactment.

But it's worse than that, as Setser highlights :

"Well over half the profits that American companies report earning abroad are still booked in only a few low-tax nations -- places that, of course, are not actually home to the customers, workers and taxpayers facilitating most of their business. A multinational corporation can route its global sales through Ireland, pay royalties to its Dutch subsidiary and then funnel income to its Bermudian subsidiary -- taking advantage of Bermuda's corporate tax rate of zero."

Again, the money itself does not make this circuitous voyage. These are all bookkeeping entries for accounting purposes. In another report, Setser estimates the totals in revenue not accrued by the U.S. Treasury to be equivalent to 1.5 percent of GDP , or some $300 billion that is theoretically unavailable for use on the home front.

Global tax arbitrage, therefore, runs in parallel with global labor arbitrage. That's the real story behind globalization, which its champions never seem to mention, as they paint a story of worldwide prosperity pulling millions out of poverty. However, as I've written before , "a big portion of Trump voters were working-class Americans displaced from their jobs by globalization, automation, and the shifting balance in manufacturing from the importance of the raw materials that go into products to that of the engineering expertise that designs them." During the 2016 election and beyond, Trump has consistently addressed his appeals to these " forgotten men and women ." Yet the president's signature legislative achievement, corporate tax reform, suggests that his base continues to receive nothing but a few crumbs off the table. The tax reform also works at variance with the main thrust of his trade policy or, indeed, his restrictionist immigration policies (and it's questionable whether these forgotten voters are actually deriving much benefit from those policies either). Not for the first time, therefore, the president's left hand is working at cross-purposes with the right. The very base to whom he continues to direct his re-election appeals get nothing. And the country as a whole remains far worse off as a result of his policy incoherence and mendacity.

Larry , July 17, 2019 at 8:11 am

A very nice summary that details how the new boss is the same as the old boss, just more offensive on Twitter. The only place where Trump's campaign promises seem to hold up at all are the sound and furry over trade with China and the border wall with Mexico. Nothing will come of this bluster most likely, but at least it makes it appear that Trump is still working on behalf of his base.

Ignacio , July 17, 2019 at 8:34 am

Will these voters realise what is really happening? Which are the alternative narratives they are receiving/accepting?

Monty , July 17, 2019 at 10:15 am

Spoiler alert: NO. As long as the alternative is giving free healthcare to undocumented immigrants, learning to code, reparations and a focus on transgender rights.

marym , July 17, 2019 at 12:13 pm

Is this the actual alternative or, at least in part, a fear mongered version of universal benefits like M4A or a jobs program; civil rights; and righting some of the wrongs of the past? It preserves the status quo or promotes it becoming even more inequitable to convince people to reject any option that also helps someone not like them, or offers relief for a problem they never had or surmounted on their own. I mean, no viable politician is "focusing on transgender rights" or doing more than barely (and opportunistically imo) giving lip service to reparations. Is the rejection of any move toward justice or equity just the result of propaganda, or are we fundamentally unable to do any better without resentment? I'm very pessimistic at the moment.

Monty , July 17, 2019 at 1:04 pm

Did you watch the Democratic debates?

marym , July 17, 2019 at 1:35 pm

No – have I misjudged? I know at least some have said they'd sign on to a "study" of reparations, even Sanders eventually, but he's been clear that he doesn't think "writing a check" is the way to address problems in distressed communities. M4A that included undocumented immigrants wouldn't bother me from a candidate who supported a path to citizenship and humane forms of enforcing future immigration restrictions, and I'm not opposed to transgender rights so maybe some of that wouldn't seem so fearsome to me if I heard it. Why it should be fearsome enough to disqualify a candidate with a platform of universal or widely distributed social benefits, economic justice, and criminal justice reform is inexplicable and sad to me.

Monty , July 17, 2019 at 3:59 pm

It doesn't matter how you understand it. It only matters what contorted misrepresentations of Democrat's actual policies that 'regular folks' aka greedy, selfish, frightened 'suburban republicans' (aka a majority of voters in most states) can be led to believe.
The focus on these kind of divisive topics is the gift that keeps giving for the right wing. What you see as reasonable, they see as a threat to their way of life. So while virtue signalling to one group, they are simultaneously alienating another and galvanizing their own opposition against them.

False Solace , July 17, 2019 at 12:40 pm

This is why Trump screams about immigrants so loudly. It's all he's got. When the facts aren't on your side, pound the table. Remember this is the guy who invented birtherism. He won't lift a finger for his voters but he sure knows how to yell about foreigners. He also promised not to cut Social Security or Medicare then submitted a budget that makes them look like Jack the Ripper victims.

Ignacio , July 17, 2019 at 1:08 pm

Yes, i think it is as simple a that. Progressives should just ignore racist and antimigrant discourse and focus on Health care, infrastructures, GND, jobs etc.

Glen , July 17, 2019 at 10:06 am

Tax cuts for the rich? Screw everyone else?

That's been true since Reagan.

a different chris , July 17, 2019 at 10:16 am

>Again, the money itself does not make this circuitous voyage.

Haha the one way you gold bugs could get me on board is if you were able to force all cross-border money flows to be limited to actual, physical gold. Ideally in wooden sailing ships.

That would change things quite a bit.

The Rev Kev , July 17, 2019 at 10:59 am

Good article this. Trump must know that the whole thing is just financial shenanigans. After all, that has been his specialty for the past few decades. But he and Washington went along with it anyway and now America's financial situation is even worse. Every actor is trying to make out in their game and hopes that the consequences fall after they have exited the market. Maybe they think that at that stage they will be able to swoop in and grab up everything else on the cheap. Having just read some history on France in 1848 and 1871 I think that the may be playing with fire and not the FIRE that they are used to.

Softie , July 17, 2019 at 11:18 am

The idiots take over the final days of crumbling civilizations. Idiot generals wage endless, unwinnable wars that bankrupt the nation. Idiot economists call for reducing taxes for corporation and the rich and cutting social service programs for the poor. They project economic growth on the basis of myth. Idiot industrialists poison the water, the soil, and the air, slash jobs and depress wages. Idiot bankers gamble on self-created financial bubbles. Idiot journalists and public intellectuals pretend despotism is democracy. Idiot intelligence operatives orchestrate the overthrow of foreign governments to create lawless enclaves that give rise to enraged fanatics. Idiot professors, "experts", and "specialists" busy themselves with unintelligible jargon and arcane theory that buttresses the policies of rulers. Idiot entertainers and producers create lurid spectacles of sex, gore and fantasy. There is a familiar checklist for extinction. We are ticking off every item on it.

– Chris Hedges, America: The Farewell Tour

JimTan , July 17, 2019 at 12:49 pm

Maybe we should create a 'national intangibles tax', and levy it specifically on the patents, trademarks, and copyrights of all U.S. domiciled companies, and on these 'intangibles' for all companies that have the majority of their common equity securities registered in the U.S.

[Aug 20, 2019] Trumponomics on the march: Israeli and EU farmers say thank you to Trump .

Notable quotes:
"... "The sentiment out in farm country is getting grimmer by the day," said John Heisdorffer, the chairman of the American Soybean Association. "Our patience is waning, our finances are suffering and the stress from months of living with the consequences of these tariffs is mounting. ..."
"... The Republican senator Chuck Grassley, who represents Iowa, a state heavily reliant on agriculture, has called for a quick resolution to the dispute. "Americans understand the need to hold China accountable, but they also need to know that the administration understands the economic pain they would feel in a prolonged trade war," Grassley said in a statement. ..."
May 14, 2019 | www.theguardian.com

American farmers are likely to feel the pain first. Soybean exports to China collapsed last year when the trade war began, and agricultural exports will be hit harder when, or if, the new tariffs are imposed. Farmers are also suffering from extensive flooding that has delayed planting.

"The sentiment out in farm country is getting grimmer by the day," said John Heisdorffer, the chairman of the American Soybean Association. "Our patience is waning, our finances are suffering and the stress from months of living with the consequences of these tariffs is mounting."

The new round of tariffs will hit other parts of the US food industry, with beans, lentils, honey, flour, corn and oats all on the list of goods that will be taxed.

... ... ...

The Republican senator Chuck Grassley, who represents Iowa, a state heavily reliant on agriculture, has called for a quick resolution to the dispute. "Americans understand the need to hold China accountable, but they also need to know that the administration understands the economic pain they would feel in a prolonged trade war," Grassley said in a statement.

[Aug 20, 2019] Trump is about the agony. The agony of the US centered global neoliberal empire.

Highly recommended!
Notable quotes:
"... The current neoliberal order failed to suppress China development enough to block her from becoming the competitor (and the second largest economy.) ..."
"... That's why a faction of the USA elite decided to adopt "might makes right" policies (essentially piracy instead of international law) in a hope that it will prolong the life of the US-centered neoliberal empire. ..."
"... As much as Trump proved to be inapt politician and personally and morally despicable individual (just his known behavior toward Melania tells a lot about him; we do not need possible Epstein revelations for that) he does represent a faction of the US elite what wants this change. ..."
"... All his pro working class and pro lower middle class rhetoric was a bluff -- he is representative of faction of the US elite that is hell bent on maintaining the imperial superiority achieved after the collapse of the USSR, whatever it takes. At the expense of common people as Pentagon budget can attest. ..."
"... That also explains the appointment of Bolton and Pompeo. That are birds of the feather, not some maniacs (although they are ;-) accidentally brought into Trump administration via major donors pressure. ..."
"... In this sense Russiagate was not only a color revolution launched to depose Trump by neoliberal wing of Democratic Party and rogue, Obama-installed elements within intelligence agencies (Brennan, Comey, McCabe, etc.) , but also part of the struggle between the faction of the US elite that wants "muscular" policy of preservation of the empire (Trump supporters faction so to speak) and the faction that still wants to kick the can down the road via "classic neoliberalism" path (Clinton supporters faction so to speak.) ..."
Aug 20, 2019 | economistsview.typepad.com

likbez -> anne... August 04, 2019 at 04:14 PM

It is not about the strategy. It's about the agony. The agony of the US centered global neoliberal empire.

Trump and forces behind him realized that current set of treaties does not favor the preservation of the empire and allows new powerful players to emerge despite all institutionalized looting via World Bank and IMF and the imposition of Washington Consensus. The main danger here are Germany (and EU in general) and, especially, China.

The current neoliberal order failed to suppress China development enough to block her from becoming the competitor (and the second largest economy.)

That's why a faction of the USA elite decided to adopt "might makes right" policies (essentially piracy instead of international law) in a hope that it will prolong the life of the US-centered neoliberal empire.

As much as Trump proved to be inapt politician and personally and morally despicable individual (just his known behavior toward Melania tells a lot about him; we do not need possible Epstein revelations for that) he does represent a faction of the US elite what wants this change.

All his pro working class and pro lower middle class rhetoric was a bluff -- he is representative of faction of the US elite that is hell bent on maintaining the imperial superiority achieved after the collapse of the USSR, whatever it takes. At the expense of common people as Pentagon budget can attest.

That also explains the appointment of Bolton and Pompeo. That are birds of the feather, not some maniacs (although they are ;-) accidentally brought into Trump administration via major donors pressure.

In this sense Russiagate was not only a color revolution launched to depose Trump by neoliberal wing of Democratic Party and rogue, Obama-installed elements within intelligence agencies (Brennan, Comey, McCabe, etc.) , but also part of the struggle between the faction of the US elite that wants "muscular" policy of preservation of the empire (Trump supporters faction so to speak) and the faction that still wants to kick the can down the road via "classic neoliberalism" path (Clinton supporters faction so to speak.)

[Aug 19, 2019] The Increasingly Bizarre Interplay Between Trump's Trade Policy and the Fed

Notable quotes:
"... China gambit is a huge gamble for Trump. It he plays it right and signd the deal with China later this year while Fed slashed rates he might create an artificial boost for the economy, enough to secure his victory. In this case his demagogy might resonate with voters. ..."
"... While Warren has her weak spots and Trump has several avenue of attack against her, she has a real program for the country and that lessen Trump chances for re-election because Trump is incapable of any serious discussion of economics and problems facing the country. His only forte is demagogy. ..."
"... Also Warren in not entangled into any foreign policy controversy and can attack Trump impulsivity and incompetence in this area with impunity. She also can leverage Russiagate sentiments, which, while pure neo-McCarthyism, will be a factor in 2020 elections. ..."
"... Many people in Mid-West now understand that he betrayed all his 2016 elections promises and just carried water for Mitch McConnell. So the question whether Trump can carry Midwestern states in 2020 is open to review. ..."
"... It is also important to note that Trump lost anti-war right. ..."
Aug 03, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 03, 2019 at 03:59 PM

The Increasingly Bizarre Interplay Between Trump's Trade Policy and the Fed https://nyti.ms/331ItNz
NYT - Neil Irwin - August 1

Here's a question for economy watchers: Is American economic policy in 2019 more like ouroboros, the ancient Egyptian symbol of a snake eating its own tail, or maybe more like an M.C. Escher painting in which a series of stairs wrap around a room in mind-bending ways?

Both seem like decent approximations of the strange ways in which trade policy, monetary policy and financial markets are intersecting this year. And never more so than this week.

On Wednesday, the Federal Reserve cut its main interest rate target, aiming to guard the American economy against damage from "trade uncertainty" and a slowing world economy, as the Fed chair, Jerome Powell, said at a news conference. But markets fell, with investors interpreting his comments to mean that the Fed won't cut rates much more in the months to come.

Then on Thursday, President Trump announced a new round of 10 percent tariffs on $300 billion worth of China exports, suggesting that a trade war détente from earlier the summer may be coming to an end. That, in turn, caused a huge swing in bond markets that implied investors now do expect further interest rate cuts as the Fed tries to contain the trade-related damage.

Going back a bit further in time, the interplay between different aspects of economic policy becomes even more convoluted.

In late spring, trade talks between the United States and China broke down, and escalation of the trade wars seemed inevitable. The stock market fell, as the conflict seemed sure to hit corporate earnings. And bond yields fell, as investors became confident that the Fed would need to cut interest rates to contain the damage.

In late June, talks got back on track, but by that time Fed officials had largely made up their minds that it would be worthwhile to cut interest rates at least once to provide insurance against the slowing global economy.

Those plans, in turn, fueled a big stock market rally in late June and July, and most economic data has been solid in that time. Whatever the risks and downsides, the Fed's shift toward lower interest rates seemed to have accomplished its goal of a financial environment that will support continued economic growth.

"After simmering early in the year, trade policy tensions nearly boiled over in May and June, but now appear to have returned to a simmer," as Mr. Powell summarized in his news conference Wednesday. President Trump turned the metaphorical stove back to high less than 24 hours after those words passed Mr. Powell's lips.

This suggests the president and his trade negotiators believe they have downside protection against the possibility that trade policies will cause any lasting damage to the economy or the stock market. After all, the

Fed has very publicly shown that it views it as appropriate to cut interest rates to combat any slowdown related to trade wars.

There is always interplay between different elements of economic policy set by various parts of government. For example, the Fed's practice is to take tax and spending decisions by Congress as a given and plug them into its models -- and adjust its interest rate policies accordingly.

What's different now is that Mr. Trump's administration seems willing to weaponize that practice, offering no qualms about openly bullying the Fed while using its presumed reaction as a source of advantage in international negotiations.

Even as Mr. Trump is comfortable abandoning the norm that the president should not explicitly pressure the Fed, Mr. Powell appears to be obeying the tradition that the Fed should not try to use its power over monetary policy to twist the arms of elected officials.

It has worked out fine for Mr. Trump so far -- the economy continues to grow heading into an election year, and while the stock market fell Wednesday after the latest trade news, the S&P 500 was down only 0.9 percent; it would surely have been down more if not for assumptions that further rate cuts were now more likely.

But it also creates a number of risks for the American economy, in both the short and longer term.

First, the Fed's interest rate policies are blunt instruments. They seem to be more effective at generating big swings in asset prices than at fine-tuning the economy, and it would be easy for Mr. Powell and his colleagues to make a mistake -- either cutting interest rates by too much, fueling inflation, or too little, allowing a slump.

There's no modern precedent for having the world's two largest economies, major trading partners, enter a trade war. And already the consequences have been more complex than one might have guessed.

The slowing Chinese economy has pulled down the price of oil, which has both lowered inflation in the United States and lowered capital investment by American energy companies. Even if the Fed is successful at boosting the overall stock market, lower rates probably won't do much to help the industries and consumers directly damaged by tariffs.

Second, the monetary policy firepower that the Fed is using to try to offset the damage from trade wars may not be available if an economic slump caused by some other factor were to emerge. The central bank would have less room to stimulate the economy than it would if it were not deploying rate cuts now.

Finally, this pattern could do longer-term damage to the Fed's credibility as an independent, credible central bank. The United States dollar is central to transactions around the world, a source of long-term geopolitical advantage. Confidence in the Fed is part of the reason. Global investors generally believe that the central bank will act with a long-term view, not based on the political needs of the current American president.

This leaves Mr. Powell in a pretty miserable spot. One way he could decisively break the cycle would be to abandon deeply held principles -- threatening to ignore the potential damage to the economy from trade wars because he thinks the president's policies will do damage over the longer term. That's not the role for unelected officials like the Fed chief, or at least it isn't supposed to be.

In this particular ouroboros, in other words, it sure seems like Mr. Trump is the mouth, and Mr. Powell is the tail.

likbez -> Fred C. Dobbs... , August 03, 2019 at 07:54 PM

China gambit is a huge gamble for Trump. It he plays it right and signd the deal with China later this year while Fed slashed rates he might create an artificial boost for the economy, enough to secure his victory. In this case his demagogy might resonate with voters.

If he does not sign the deal with China, he implicitly increases chances for Warren to become Democratic nominee (Kamala now is weakened; Biden is problematic and not only due to his semi-senility; Sanders is viewed as an enemy by the Democratic Party elite and proved to be Hillary sheepdog in 2016).

While Warren has her weak spots and Trump has several avenue of attack against her, she has a real program for the country and that lessen Trump chances for re-election because Trump is incapable of any serious discussion of economics and problems facing the country. His only forte is demagogy.

Also Warren in not entangled into any foreign policy controversy and can attack Trump impulsivity and incompetence in this area with impunity. She also can leverage Russiagate sentiments, which, while pure neo-McCarthyism, will be a factor in 2020 elections.

Especially bad Trump chances are in case economics slides into recession in the second half of 2020 or, God forbid, stock market crashes.

Other then Fed rate cuts Trump does not have any real tools to stimulate the economy and his tax cut for the rich is not viewed too positively by the majority of the population. Trumpcare is viewed mostly negatively.

Many people in Mid-West now understand that he betrayed all his 2016 elections promises and just carried water for Mitch McConnell. So the question whether Trump can carry Midwestern states in 2020 is open to review.

It is also important to note that Trump lost anti-war right.

[Aug 19, 2019] Statistics from the government and other sources do not support Mr. Trump s claim about his policies effectiveness in drawing investment and jobs from abroad

Notable quotes:
"... Foreign investment in the United States grew at a slower annual pace in the first two years of Mr. Trump's tenure than during Barack Obama's presidency, according to Commerce Department data released in July. Growth in business investment from all sources, foreign and domestic, accelerated briefly after Mr. Trump signed a $1.5 trillion tax-cut package in late 2017 but then slowed. Investment growth turned negative this spring, providing a drag on economic output. ..."
"... Now manufacturing is struggling amid a global slowdown and fallout from the trade war, which Mr. Trump has escalated by imposing additional tariffs on Chinese goods and by labeling China a "currency manipulator." ... ..."
Aug 13, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 13, 2019 at 10:33 AM

Trump's Push to Bring Back Jobs to US Shows
Limited Results https://nyti.ms/31y1HsE
NYT - Jim Tankersley - August 13

WASHINGTON -- From tax cuts to relaxed regulations to tariffs, each of President Trump's economic initiatives is based on a promise: to set off a wave of investment and bring back jobs that the president says the United States has lost to foreign countries.

"We have the greatest companies anywhere in the world," Mr. Trump said at the White House recently. "They're all coming back now. They're coming back to the United States."

Mr. Trump's tax cuts unquestionably stimulated the American economy in 2018, helping to push economic growth to 2.5 percent for the year and fueling an increase in manufacturing jobs. But statistics from the government and other sources do not support Mr. Trump's claim about his policies' effectiveness in drawing investment and jobs from abroad.

Foreign investment in the United States grew at a slower annual pace in the first two years of Mr. Trump's tenure than during Barack Obama's presidency, according to Commerce Department data released in July. Growth in business investment from all sources, foreign and domestic, accelerated briefly after Mr. Trump signed a $1.5 trillion tax-cut package in late 2017 but then slowed. Investment growth turned negative this spring, providing a drag on economic output. ...

Fred C. Dobbs said in reply to Fred C. Dobbs... , August 13, 2019 at 10:41 AM
... the Reshoring Initiative ( http://www.reshorenow.org/) data show fewer than 30,000 jobs that companies say they will relocate to the United States because of Mr. Trump's tariffs on imported steel, aluminum, solar panels, washing machines and a variety of Chinese goods. Researchers at A.T. Kearney (*) said last month that Mr. Trump's trade policies, including tariffs, had pushed factory activity not to the United States but to low-cost Asian countries other than China, like Vietnam.

Manufacturers of primary metals, which include steel and aluminum, have added fewer than 15,000 jobs since Mr. Trump took office, with more than half of those gains coming before Mr. Trump imposed tariffs on foreign-made metals last year.

Now manufacturing is struggling amid a global slowdown and fallout from the trade war, which Mr. Trump has escalated by imposing additional tariffs on Chinese goods and by labeling China a "currency manipulator." ...

* US Trade Policy and Reshoring:
The Real Impact of America's New Trade Policies
https://www.atkearney.com/operations-performance-transformation/us-reshoring-index

[Aug 18, 2019] Why Was Trumponomics a Flop? Neither tax cuts nor tariffs are working.

Notable quotes:
"... But why has Trumponomics failed to deliver much besides trillion-dollar budget deficits? The answer is that both the tax cuts and the trade war were based on false views about how the world works. ..."
"... Republican faith in the magic of tax cuts -- and, correspondingly, belief that tax increases will doom the economy -- is the ultimate policy zombie, a view that should have been killed by evidence decades ago but keeps shambling along, eating G.O.P. brains. ..."
"... What about the trade war? The evidence is overwhelming: Tariffs don't have much effect on the overall trade balance. At most they just shift the deficit around: We're importing less from China, but we're importing more from other places, like Vietnam. ..."
"... And there's a good case to be made that Trump's tariffs have actually hurt U.S. manufacturing. For one thing, many of them have hit "intermediate goods," that is, stuff American companies use in their production processes, so the tariffs have raised costs. ..."
"... Now, none of this has led to economic catastrophe. As Adam Smith once wrote, "There is a great deal of ruin in a nation." Except in times of crisis, presidents matter much less for the economy than most people think, and while Trumponomics has utterly failed to deliver on its promises, it's not bad enough to do enormous damage. ..."
Aug 02, 2019 | economistsview.typepad.com

anne , August 02, 2019 at 04:05 AM

https://www.nytimes.com/2019/08/01/opinion/trump-economy.html

August 1, 2019

Why Was Trumponomics a Flop? Neither tax cuts nor tariffs are working.
By Paul Krugman

Donald Trump has pursued two main economic policies. On taxes, he has been an orthodox Republican, pushing through big tax cuts for corporations and the wealthy, which his administration promised would lead to a huge surge in business investment. On trade, he has broken with his party's free(ish) trade policies, imposing large tariffs that he promised would lead to a revival of U.S. manufacturing.

On Wednesday, the Federal Reserve cut interest rates, even though the unemployment rate is low and overall economic growth remains decent, though not great. According to Jerome Powell, the Fed's chairman, the goal was to take out some insurance against worrying hints of a future slowdown -- in particular, weakness in business investment, which fell in the most recent quarter, and manufacturing, which has been declining since the beginning of the year.

Obviously Powell couldn't say in so many words that Trumponomics has been a big flop, but that was the subtext of his remarks. And Trump's frantic efforts to bully the Fed into bigger cuts are an implicit admission of the same thing.

To be fair, the economy remains pretty strong, which isn't really a surprise given the G.O.P.'s willingness to run huge budget deficits as long as Democrats don't hold the White House. As I wrote three days after the 2016 election -- after the shock had worn off -- "It's at least possible that bigger budget deficits will, if anything, strengthen the economy briefly." And that's pretty much what happened: There was a bit of a bump in 2018, but at this point we've basically returned to pre-Trump rates of growth.

But why has Trumponomics failed to deliver much besides trillion-dollar budget deficits? The answer is that both the tax cuts and the trade war were based on false views about how the world works.

Republican faith in the magic of tax cuts -- and, correspondingly, belief that tax increases will doom the economy -- is the ultimate policy zombie, a view that should have been killed by evidence decades ago but keeps shambling along, eating G.O.P. brains.

The record is actually awesomely consistent. Bill Clinton's tax hike didn't cause a depression, George W. Bush's tax cuts didn't deliver a boom, Jerry Brown's California tax increase wasn't "economic suicide," Sam Brownback's Kansas tax-cut "experiment" (his term) was a failure.

Nevertheless, Republicans persist. This time around, the centerpiece of the tax cut was a huge break for corporations, which was supposed to induce companies to bring back the money they've invested overseas and put the money to work here. Instead, they basically used the tax savings to buy back their own stock.

What went wrong? Business investment depends on many factors, with tax rates way down the list. While a casual look at the facts might suggest that corporations invest a lot in countries with low taxes, like Ireland, this is mainly an illusion: Companies use accounting tricks to report huge profits and hence big investments in tax havens, but these don't correspond to anything real.

There was never any reason to believe that cutting corporate taxes here would lead to a surge in capital spending and jobs, and sure enough, it didn't.

What about the trade war? The evidence is overwhelming: Tariffs don't have much effect on the overall trade balance. At most they just shift the deficit around: We're importing less from China, but we're importing more from other places, like Vietnam.

And there's a good case to be made that Trump's tariffs have actually hurt U.S. manufacturing. For one thing, many of them have hit "intermediate goods," that is, stuff American companies use in their production processes, so the tariffs have raised costs.

Beyond that, the uncertainty created by Trump's policy by whim -- nobody knows what he'll hit next -- has surely deterred investment. Why build a manufacturing plant when, for all you know, next week a tweet will destroy your market, your supply chain, or both?

Now, none of this has led to economic catastrophe. As Adam Smith once wrote, "There is a great deal of ruin in a nation." Except in times of crisis, presidents matter much less for the economy than most people think, and while Trumponomics has utterly failed to deliver on its promises, it's not bad enough to do enormous damage.

On the other hand, think of the missed opportunities. Imagine how much better shape we'd be in if the hundreds of billions squandered on tax cuts for corporations had been used to rebuild our crumbling infrastructure. Imagine what we could have done with policies promoting jobs of the future in things like renewable energy, instead of trade wars that vainly attempt to recreate the manufacturing economy of the past.

And since everything is political these days, let me say that pundits who think that Trump will be able to win by touting a strong economy are almost surely wrong. He most likely won't face a recession (although who knows?), but he definitely hasn't made the economy great again.

So he's probably going to have to do what he's already doing, and clearly wants to do: run on racism instead.

anne -> anne... , August 02, 2019 at 07:49 AM
https://fred.stlouisfed.org/graph/?g=oxlA

January 30, 2019

United States Imports of Goods from China and Vietnam, 2017-2019

(Percent change)

Plp -> anne... , August 02, 2019 at 12:31 PM
The economy needs a trillion dollar
Demand injection
Over the next 4 quarters

Will Trump find away

Awareness Awakens said in reply to anne... , August 02, 2019 at 07:11 PM

https://2.bp.blogspot.com/-3rVOpJjNWDE/XURd7OHkw6I/AAAAAAAAyuY/QWZBJxk2sP8VgFu5VTTxhz1Kliuah9SEgCLcBGAs/s1600/PublicJuly2019.PNG

https://2.bp.blogspot.com/-B1-QKHDmxIw/XURd4i2Ku0I/AAAAAAAAyuU/2Iflx0lBX5MrsAwzezy4pzV5dSVc_0negCLcBGAs/s1600/PrivateJuly2019.PNG

anne , August 02, 2019 at 04:07 AM
https://www.nytimes.com/2019/07/25/opinion/trump-foreign-investors.html

July 25, 2019

Trump's Secret Foreign Aid Program
He's giving away billions to overseas investors.
By Paul Krugman

Donald Trump often complains that the media don't give him credit for his achievements. And I can think of at least one case where that's true. As far I can tell, almost nobody is reporting that he has presided over a huge -- but hidden -- increase in foreign aid, the money America gives to foreigners. In fact, the hidden Trump program, currently running at around $40 billion a year, is probably the biggest giveaway to other nations since the Marshall Plan.

Unfortunately, the aid isn't going either to poor countries or to America's allies. Instead, it's going to wealthy foreign investors.

Before I get there, let's talk for a second about a claim Trump often makes about a highly visible part of his economic strategy, the tariffs he has imposed on imports from China and other countries. These tariffs, he has insisted again and again, are being paid by China and represent billions in gains to the United States.

This claim is, however, demonstrably false. Tariffs are normally paid by consumers in the importing country, not exporters. And we can confirm that this is what's happening with the Trump tariffs: Prices of goods subject to those tariffs have risen sharply, roughly in line with the tariff increases, while prices of goods not subject to the new tariffs haven't gone up.

So Trump's tariffs aren't a tax on foreigners, whatever he may think. On the other hand, his other policies have given selective foreigners a huge tax break.

Remember, Trump's only major legislative achievement so far is the 2017 Tax Cut and Jobs Act. The core of that bill was a sharp reduction in corporate tax rates, which has led to a drastic fall in tax revenues, on the order of $140 billion over the past year.

Who gains from this tax cut? Supporters of the bill claimed that the benefits would be passed on to workers in the form of higher wages, and they made a big deal over a flurry of corporate bonus announcements in early 2018. But those bonuses weren't actually very big, and they didn't continue.

In fact, at this point it's clear that the bonus surge, such as it was, was all about tax avoidance: By moving up payments they were going to make anyway, corporations got to deduct the expense at the old, higher tax rate. Now that this option has expired, bonuses have dropped back to their normal level, or even a bit lower.

What about the argument that tax cuts would promote a huge swell in business investment, which would push up wages? Well, that isn't happening, either; when it comes to business spending, the tax cut has been a big fizzle.

So who is benefiting from the tax cut? Basically, shareholders, who have received increased dividends and seen a lot of capital gains as corporations use their windfall not to invest, but to buy back their own stocks.

And a big share of these gains to shareholders has gone to foreigners.

We live, after all, in an era of globalized finance, in which wealthy investors normally own assets in many countries. Americans own trillions in foreign equity, both directly in the form of foreign stocks and indirectly in the form of stocks of U.S. corporations with foreign subsidiaries. Foreigners, correspondingly, have a big stake here, again both through direct stock ownership and via operation of their corporate subsidiaries.

Over all, foreigners own about 35 percent of the equity in corporations subject to U.S. taxes. And as a result, foreign investors have received around 35 percent of the benefits of the tax cut. As I said, that's more than $40 billion a year.

To put this in perspective, Trump's tariffs on China have raised $20 billion so far. Even if China were paying those tariffs -- which it isn't -- that would fall well short of the gift he's made to foreign investors.

Alternatively, we can compare Trump's gift to foreign investors with our actual spending on foreign aid (which is much smaller than most people imagine). In 2017, the U.S. spent $51 billion on "international affairs," but much of that was either the cost of operating embassies or military assistance. The Trump tax break for overseas investors is considerably bigger than the total amount we spend on foreign aid proper.

Now, the U.S. economy is almost inconceivably huge, producing more than $20 trillion worth of goods and services every year. We're also a country that investors trust to honor its debts, so the tax cut, irresponsible as it is, isn't causing any immediate fiscal stress.

So Trump's giveaway to foreign investors isn't going to make or break us, although it's probably enough to ensure that the tax cut will be, over all, a net drain on economic growth: Even if the tax cut has some positive effect on the total income generated here (which is doubtful), this will probably be more than offset by the increased share of that income accruing to foreigners rather than U.S. citizens.

Still, even in America, $40 billion here, $40 billion there, and eventually you're talking about real money. Furthermore, it does seem worth pointing out that even as Trump boasts about taking money away from foreigners, his actual policies are doing exactly the opposite.

Plp -> anne... , August 02, 2019 at 12:34 PM
The present domestic economy has net leaks
Of a trillion every year even with
the current fiscal deficit

No way engineered wealth effects
On consumption
can
Replace that entirely


We need a signifigant fiscal injection

Plp -> Plp... , August 02, 2019 at 12:37 PM
At least 1/2 A trillion

New Infrastructure spending
can't get spent that fast

So

Trump ought propose a payroll tax holiday

anne -> Plp... , August 02, 2019 at 12:58 PM
The present domestic economy has net leaks (net exports)
Of a trillion every year even with
the current fiscal deficit

No way engineered wealth effects
On consumption
can
Replace that entirely

We need a significant fiscal injection

[ Interesting argument. ]

anne -> anne... , August 02, 2019 at 12:58 PM
https://fred.stlouisfed.org/graph/?g=lrqm

January 15, 2018

Net Exports of goods and services, 2000-2018


https://fred.stlouisfed.org/graph/?g=lVai

January 30, 2018

Net Exports as Share of Gross Domestic Product, 2000-2018

[Aug 18, 2019] New Poll Shows Almost Half Of Americans Think Trump's Trade War Is Bad

Notable quotes:
"... Consumers figuring out that it is they who pay the tariffs could backfire on the Trump administration. ..."
"... According to our reporting last month , a 25% tariff on $200 billion in Chinese goods would cost the average American household $831 per year, something that could anger many families as the overall economy is cycling down through summer. ..."
"... ...Farmers get hurt most. They still steadfastly support Trump. ..."
Jun 30, 2019 | www.zerohedge.com

Consumers figuring out that it is they who pay the tariffs could backfire on the Trump administration.

While the President continues to insist that China pays the tariffs, Americans are starting to become more spectacle that he could be deceiving them.

Of all respondents, 46% said the economy is set to deteriorate if a near-term deal isn't reached, while 44% are convinced that China will be the biggest loser.

The poll found that 45% believe tariffs on Chinese goods is slowing the economy, while only 26% believe they help. A National Bureau of Economic Research report shows that American consumers fully pay tariffs - and it's one of the main reasons why respondents are becoming increasingly pessimistic about the trade war. The 2018 report noted, "The U.S. experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network" and reduced availability of imports.

According to our reporting last month , a 25% tariff on $200 billion in Chinese goods would cost the average American household $831 per year, something that could anger many families as the overall economy is cycling down through summer.


raymeejrs , 1 minute ago link

Most Americans, yes, even conservatives are to selfish, tech blinded, media watching sheep, to realize how unbalanced trade has been {against the US} for decades now.

Not to mention they are totally clueless that this was set up this way on purpose..

To transfer wealth, and jobs out of this country to the east... Sadly, many steel workers, auto workers, die makers and setters are more than aware of this "fair trade" fiasco that has eliminated their jobs.

We went from being a producing based country, to a consumer based country during my life time.

Granted, I was born{1965} already at the end of our producing cycle. People just wont care, and will believe ANYTHING the establishment feeds them until its to late.

It already is..

847328_3527 , 3 minutes ago link

Trump can get support by eliminating free shipping from China to USA. Small businesses would hug him for that.

g3h , 6 minutes ago link

...Farmers get hurt most. They still steadfastly support Trump.

[Aug 18, 2019] The Trump-McConnell-Ryan tax cut has been a complete failure at boosting the American economy through increased investment in America

Notable quotes:
"... There are still no signs the U.S. has entered that phase of the recovery in which inflation is accelerating. ..."
"... There are still no signs of interest rate normalization: secular stagnation continues to reign. ..."
Jun 11, 2019 | www.bradford-delong.com

Key Points:

Specifically, it is still the case that:

[Aug 17, 2019] America is the richest country in the world, but it has more than half a million homeless and 28 million people without health insurance out of a population of around 325 million. Is America Crazy? by John Feffer

Decline of neoliberalism in not a pretty picture. Whom the gods would destroy they first make mad. Greek version of this saying which appers in Sophocles’ play Antigone is more precise: "evil appears as good in the minds of those whom god leads to destruction". Oscar Wilde — 'When the Gods wish to punish us, they answer our prayers.'
Aug 17, 2019 | www.counterpunch.org
The United States witnessed three mass shootings in one week recently in California, Texas, and Ohio. There have been more than 250 mass shootings so far in 2019, more than one a day. This year in America, more than 33,000 shooting incidents have killed more than 8,700 people.

America is the richest country in the world, but it has more than half a million homeless and 28 million people without health insurance – out of a population of around 325 million. The U.S. infant mortality rate places it 33rd out of wealthiest 36 nations.

... ... ...

People from other industrialized countries must think that the United States has simply gone insane. It is a nation of terrible extremes: grotesque wealth and horrific poverty, brilliant minds and widespread ignorance, high rates of volunteerism and endemic violence. America seems to be suffering from some kind of bipolar disorder with pockets of manic energy and large areas of deep depression.

It would be tempting to argue that America is only suffering from a bout of temporary insanity. But mass shootings, gross economic inequality, and corruption didn't begin when Donald Trump became president. He has made matters worse, to be sure. But these trends are longstanding.

So, why do Americans put up with such violence, economic inequality, and political nonsense?

... ... ...

Moreover, more than half of Americans have never traveled to another country. One in ten hasn't even gone outside the state in which he or she was born. Since most of the news about other countries is negative, Americans naturally believe that life is more dangerous outside their borders. They haven't actually seen what it's like in other countries, so there's no way for them to compare the craziness of life in America with life anywhere else.

Of course, plenty of countries experience considerable violence, economic inequality, and political corruption. But they are usually not powerful industrialized nations.

In the 2019 Global Peace Index , for instance, the United States ranks 128 th in the world, between South Africa and Saudi Arabia. Kosovo, Haiti, and Bangladesh all rank higher than America. Part of the reason that the United States ranks so poorly is the amount of military violence that the country inflicts around the world – through war, arms sales, and military bases. But the high homicide rate in the United States also dragged its score down.

The GINI index measures a country's economic inequality. The United States, according to OECD figures , is fourth from the bottom of the wealthiest countries in the world. Only Chile, Turkey, and Mexico have greater income inequality after taxes and transfers.

On corruption issues, the United States has generally been in the top twenty in terms of transparency. But in 2018, it dropped six places to number 22 in the Transparency International rankings. Here, the influence of the Trump administration has been significant. The problem is not ordinary corruption like bribery. Rather, Trump is challenging the very foundations of the rule of law. He promised to "drain the swamp" of political influence-peddling in Washington, DC. But he has only made the nation's capital swampier.

Individuals with mental disorders can seek professional help. They can take medications and enter psychotherapy. They can check themselves into a hospital.

But what happens when a country is crazy?

[Aug 17, 2019] Is Warren just another smooth talking confidence artist?

Video link removed --- see the original post...
Aug 17, 2019 | www.nakedcapitalism.com

Warren (D)(1): Worth listening to in full:

There's a lot wrong here -- although Warren is a terrific story teller -- but it's really too bad that Obama didn't say "accounting control fraud," instead of "predatory lending." Although it's not clear that Warren would have understood him if he had.

Michael Fiorillo , August 16, 2019 at 2:23 pm

You're damn right there's problems with Warren's Obama story: he does five minutes of research about her career and focus before she arrives, makes sure to be backlit upon her entrance, rings what comes across as a transparently canned bell and she swoons!

I get that that most people were taken in by that talented, fraudulent shapeshifter, but this is painful to watch.

Synoia , August 16, 2019 at 2:25 pm

Smooth talking confidence artist, IMHO.

[Aug 17, 2019] Bankruptcy-related job losses are rising at rates not seen since 2009

Aug 17, 2019 | economistsview.typepad.com

im1dc , August 07, 2019 at 05:44 PM

"Bankruptcy-related job losses are rising at rates not seen since 2009"

Grim foreshadowing of what may come and quickly...

https://www.marketwatch.com/story/bankruptcies-cause-the-highest-number-of-job-losses-since-2009-when-the-us-was-in-the-depths-of-the-great-recession-2019-08-06

"Bankruptcy-related job losses are rising at rates not seen since 2009, invoking grim reminders of the Great Recession"

By Quentin Fottrell, Personal Finance Editor...Aug 7, 2019...8:24 p.m. ET

"The recent spate of bankruptcies in corporate America is taking its toll.

In the first seven months of the year, U.S.-based companies announced 42,937 job cuts due to bankruptcy, up 40% on the same period last year and nearly 20% higher than all bankruptcy-related job losses last year, a report released Tuesday concluded. Despite record-low unemployment, bankruptcy filings have not claimed this many jobs since the Great Recession.

"It is the highest seven-month total since 2009 when 50,258 cuts due to bankruptcy were announced," according to the report by outplacement and business coaching firm Challenger, Gray & Christmas. "In fact, it is higher than the annual totals for bankruptcy cuts every year since 2009."...

[Aug 16, 2019] In my eyes the NWO has lost its stamina in its fight to conquer the world

Aug 16, 2019 | www.unz.com

Ahoy , says: August 15, 2019 at 5:32 pm GMT

@ J. Gutierrez

In my eyes the NWO has lost its stamina in its fight to conquer the world. They started with the dismemberment of Yugoslavia during degenerate Clinton times and continued with the so called Color Revolutions. That imitation of human being, General Clark, told us it will be 7 countries in 7 years. That would take care of the M.E. After two successes, Libya and Irak, the Russians gave their ass in their hands in Syria.

Let's take a look at South America. In Brazil they deposed Rousef and installed that nincampoop Bolsonaro. To me that victory has all the characteristics of Disney cartoon. Venezouela now. It was January 2018 they told us they are going to invade to restore democracy (here we laugh) and human rights (more laughter) and they are still invading. They know if they ever dare the whole South America will be up in arms and that is too big of a bite to chew.

Add to this a 24 trillion debt economy with 15% of the Americans homeless and their dream just fizzled.

Mexico is humanistic and civilised and when something dear to them is threatened THEY RUN AS ONE TO RING THE CHURCH BELLS. They will not only survive they will come out victorious.

Some other time we will take a look at this monstrous attack against the white race in Europe through engineered invasion of Afroasians. Planning and management of Soros. The scum of the earth.

Enjoy your Harley!

[Aug 15, 2019] Warren might soon pass Biden of official polls

Aug 15, 2019 | economistsview.typepad.com

im1dc , August 14, 2019 at 08:25 AM

Yet another clear as day reason S. Warren is the leading and ONLY Dem candidate with ideas and actual SOLUTIONS to fix America's problems

PS do note that a recent Poll but Biden behind Sanders in New Hampshire

https://www.thedailybeast.com/elizabeth-warren-suggests-shed-repeal-the-94-crime-bill?ref=home

"Elizabeth Warren Suggests She'd Repeal Biden's 1994 Crime Bill"

'The senator had tough words for one of Joe Biden's signature laws'

by Gideon Resnick, Political Reporter...08.14.19...10:57AM ET

"Sen. Elizabeth Warren (D-MA) suggested in an interview Tuesday evening that she would seek the repeal of the 1994 crime bill -- a historic though highly controversial measure tied closely to one of her closest competitors for the Democratic presidential nomination.

It "needs to be changed, needs to be rolled back, needs to be repealed." Warren said of the law, which has become widely bemoaned by criminal justice reform advocates for its tough-on-crime measures, harsh sentencing guidelines, and general encouragement of the war on drugs."...

im1dc , August 14, 2019 at 09:21 AM
Good news for S. Warren, Bad news for V.P. Biden

...but in meaningless Polling at this early date

https://thehill.com/homenews/senate/457387-biden-just-one-point-ahead-of-warren-in-new-weekly-tracking-poll

"Biden just 1 point ahead of Warren in new weekly tracking poll"

By Julia Manchester...08/14/19...11:04 AM EDT

"Sen. Elizabeth Warren (D-Mass.) is trailing former Vice President Joe Biden by just 1 point in a new Economist–YouGov weekly tracking poll.

Biden sits at 21 percent support in the survey, while Warren is close behind at 20 percent. The next candidate is Sen. Bernie Sanders (I-Vt.) at 16 percent support among voters."...

Plp -> im1dc... , August 14, 2019 at 03:30 PM
If broadly reflective of a trend


It means Biden as massive front runner
A few months ago
Is now deflating fast

Fred C. Dobbs , August 14, 2019 at 01:13 PM
Pa. Democrats support Joe Biden and Elizabeth
Warren, but will vote for anyone against
Donald Trump in 2020, poll finds
https://www.inquirer.com/politics/pennsylvania/pa-2020-presidential-election-poll-trump-biden-warren-sanders-20190808.html

Hiladelphia Inquirer - August 8

Pennsylvania voters have very strong -- and mostly negative -- views about President Donald Trump, and about half say they will vote against him no matter his opponent, according to a new poll of registered voters across the state.

Over multiple questions and surveys, a clear portrait emerges of an electorate deeply polarized over the president, with strongly held feelings on either side.

About half of voters had a "strongly unfavorable" opinion of the president, twice the number who held a "strongly favorable" opinion.

And while the divisions among Democratic voters are real during this primary election, especially across groups such as age, race, and income, the real divide is between the parties and ideologies: Most Democrats, regardless of which candidate they support, say they will vote against Trump no matter what. ...

---

Trump claims credit for Shell plant announced under Obama
https://www.inquirer.com/news/donald-trump-beaver-county-pa-shell-cracker-energy-environment-climate-20190813.html
Philadelphia Inquirer - JILL COLVIN and JOSH BOAK - August 13

MONACA, Pa. (AP) -- President Donald Trump sought to take credit Tuesday for the construction of a major manufacturing facility in western Pennsylvania as he tries to reinvigorate supporters in the Rust Belt towns who helped send him to the White House in 2016.

Trump visited Shell Oil Co.'s soon-to-be completed Pennsylvania Petrochemicals Complex, which will turn the area's vast natural gas deposits into plastics. The facility, which critics claim will become the largest air polluter in western Pennsylvania, is being built in an area hungry for investment.

Speaking to a crowd of thousands of workers dressed in fluorescent orange-and-yellow vests, Trump said, "This would have never happened without me and us."

In fact, Shell announced its plans to build the complex in 2012, when President Barack Obama was in office.

A Shell spokesperson said employees were paid for their time attending Trump's remarks.

Trump used the official White House event as an opportunity to assail his Democratic rivals, saying, "I don't think they give a damn about Western Pennsylvania, do you?"

The focus is part of a continued push by the Trump administration to increase the economy's dependence on fossil fuels in defiance of increasingly urgent warnings about climate change. And it's an embrace of plastic at a time when much of the world is sounding alarms over its impact.

"We don't need it from the Middle East anymore," Trump said of oil and natural gas, calling the employees "the backbone of this country."

Trump's appeals to blue-collar workers helped him win Beaver County, where the plant is located, by more than 18 percentage points in 2016, only to have voters turn to Democrats in 2018's midterm elections. In one of a series of defeats that led to Republicans' loss of the House, voters sent Democrat Conor Lamb to Congress after the prosperity promised by Trump's tax cuts failed to materialize.

Beaver County is still struggling to recover from the shuttering of steel plants in the 1980s that surged the unemployment rate to nearly 30%. Former mill towns like Aliquippa have seen their populations shrink, while nearby Pittsburgh has lured major tech companies like Google and Uber, fueling an economic renaissance in a city that reliably votes Democratic.

Trump claimed that his steel and aluminum tariffs have saved those industries and that they are now "thriving." a description that exaggerates the recovery of the steel industry.

Trump also took credit for the addition of 600,000 U.S. manufacturing jobs. Labor Department figures show that roughly 500,000 factory jobs have been added under his presidency. ...

(Apparently, workers' pay would be docked if they
did not attend; and they were advised to 'behave'.)

[Aug 15, 2019] "Moscow Mitch" nickname means that anybody who does not fully conform classic neoliberal dogma is now Russian stooge and anti-Semite (attack on Corbin and his faction in the UK)

Notable quotes:
"... Now one can probably understand Russiagate (among other things) as both of "Hail Mary" pass to unify those two factions on the base of common external enemy (Russophobia or, better, Russophenia does represent the lowest common denominator between two parties), as well as the attempt to misdirect people away from the fact that Trump's election represents an irreconcilable split in the US elite. ..."
"... Trump faction which can roughly be described as one related to extractive and heavy manufacturing industries (energy, agriculture, mining, construction, steel, aluminum industries, etc.) went to war against FIRE sector, media and tech sectors. Currently they are undergunned and undermanned: MSM and intelligence agencies control is in the hands of the New Class. "Trumpists" can rely only on military intelligence and some MSM outlets (Fox). Moreover Trump himself was quickly neutered and now represents a shadow (or caricature) of former, election time, self. ..."
"... Also "Trumpists" have the intensity and ferocity of people who fight for the right cause (or at least against well-defined enemy -- classic neoliberalism), which is lacking in "classic neoliberals" camp. They also have (temporary and tactical) support of the resurgent nationalist movement. The latter is the natural result of more then 40 year on neoliberal domination (if we count from Carter, who and not Reagan was the first neoliberal president and who started Wall Street deregulation.) ..."
"... That's why the color revolution was launched against Trump camp (nothing personal here, just business) by Dems who represent those three sectors politically. They do not want to lose political power. Which is completely understandable, but let then eat cakes does not work. ..."
Aug 15, 2019 | economistsview.typepad.com

im1dc , August 14, 2019 at 02:10 PM

Speaker Pelosi finally is hitting Moscow Mitch hard, let's hope she also remembers to hit him often after today...

https://thehill.com/homenews/house/457419-pelosi-refers-to-mcconnell-as-moscow-mitch

"Pelosi refers to McConnell as 'Moscow Mitch'"

By Cristina Marcos...08/14/19...01:09 PM EDT

"Speaker Nancy Pelosi (D-Calif.) on Wednesday called Senate Majority Leader Mitch McConnell (R-Ky.) "Moscow Mitch" while attacking him for blocking House Democrats' legislation, including election security measures."...

likbez -> im1dc... , August 14, 2019 at 10:21 PM
I like "Moscow Mitch" nickname. It reflects that depth of the split between two factions of the US elite. The equivalent for Pelosi would probably be to call her "Insurance industry prostitute." That means war propaganda mode: anybody who does not fully conform to the classic neoliberal dogma is now Russian stooge and anti-Semite (attack on Corbin and his faction in the UK)

Now one can probably understand Russiagate (among other things) as both of "Hail Mary" pass to unify those two factions on the base of common external enemy (Russophobia or, better, Russophenia does represent the lowest common denominator between two parties), as well as the attempt to misdirect people away from the fact that Trump's election represents an irreconcilable split in the US elite.

Trump faction which can roughly be described as one related to extractive and heavy manufacturing industries (energy, agriculture, mining, construction, steel, aluminum industries, etc.) went to war against FIRE sector, media and tech sectors. Currently they are undergunned and undermanned: MSM and intelligence agencies control is in the hands of the New Class. "Trumpists" can rely only on military intelligence and some MSM outlets (Fox). Moreover Trump himself was quickly neutered and now represents a shadow (or caricature) of former, election time, self.

But still he was able to unleash trade war with China which really hurt opposing faction of the elite.

Also "Trumpists" have the intensity and ferocity of people who fight for the right cause (or at least against well-defined enemy -- classic neoliberalism), which is lacking in "classic neoliberals" camp. They also have (temporary and tactical) support of the resurgent nationalist movement. The latter is the natural result of more then 40 year on neoliberal domination (if we count from Carter, who and not Reagan was the first neoliberal president and who started Wall Street deregulation.)

That's why the color revolution was launched against Trump camp (nothing personal here, just business) by Dems who represent those three sectors politically. They do not want to lose political power. Which is completely understandable, but let then eat cakes does not work.

So the real danger for "Clintonists" now is that tech monopolies like Google will be split and neutered and some investment banks who were too cozy to Clintons might soon have problems.

In this sense it is prudent to view Elisabeth Warren with her anti-Wall Street stance as a variation of Trump theme (Trump very quickly folded and became kind of parody on Obama). Which means that she might have a chance.

im1dc , August 14, 2019 at 02:38 PM

I apologize for posting yet another crazy conspiracy story being spread by Trump Supporter Media

...read this to see how truly crazy the Right Reality is...

Moscow Mitch fits right in with these loonies...'I know the truth, I'm protecting you, THEY are out to get me, The truth will come out you'll see, it's a secret conspiracy of the Left', yada, yada, yada

https://www.thedailybeast.com/james-okeefes-google-whistleblower-loves-qanon-accused-zionists-of-running-the-government

"James O’Keefe’s Google ‘Whistleblower’ Loves QAnon, Accused ‘Zionists’ of Running the Government"

'The former YouTube software engineer believes Google is now trying to “off” him'

by Will Sommer...08.14.19...3:56PM ET

"Right-wing provocateur James O’Keefe published his latest video on tech giants on Wednesday, touting an interview with former YouTube software engineer and self-proclaimed “whistleblower” Zach Vorhies. In the video, Vorhies claims that Google’s search algorithms are riddled with political bias, and touted a cache of internal Google files he alleges prove his case.

Vorhies complains that Google doesn’t surface conspiracy theory websites like InfoWars in one of its news search algorithms. He insists that his information is so valuable that he has a credible fear that Google could be “trying to off me.”

“Some say that you’re a hero, some are going to say that you have extreme moral courage,” O’Keefe told the former Googler in the video.

“I always thought that when the time came to do the right thing, in a big way, that I would always be the one that stood up and did the right thing,” Vorhies replied.

What O’Keefe’s video leaves out, though, is that his much-hyped insider is not as credible as he claims. On social media, Vorhies is an avid promoter of anti-Semitic slanders that banks, the media, and the United States government are controlled by “Zionists.” He’s also pushed conspiracy theories like QAnon, Pizzagate, and the discredited claim that vaccines cause autism.

On Wednesday, O’Keefe defended Vorhies on Twitter. “Not every source is a perfect angel,” he tweeted. “Good journalists know this is true.” Vorhies and Google didn’t respond to requests for comment.

On his Twitter account, @Perpetualmaniac, Vorhies repeatedly attacks Jewish people and accuses them of a wide range of crimes. (Both O’Keefe and his group, Project Veritas, promoted Vorhies’s Twitter account in tweets on Monday.)

He even alleges that “Zionists” killed conservative publisher and O’Keefe mentor Andrew Breitbart, who died of heart failure in 2012.

“It’s very simple, either you go along with the zionists or you end up like Andrew Breitbart,” Vorhies wrote in January.

In a May tweet, Vorhies accused Israel of plotting the 9/11 attacks, and encouraged Twitter users to look up 9/11-related conspiracy theory content, providing no evidence of his claims.

“Israel and the zionist cabal planned 9/11 and its going to all come out,” Vorhies wrote."..l.

im1dc -> im1dc... , August 14, 2019 at 02:41 PM
"the Right Reality" ought to be 'the Right's Reality'

[Aug 12, 2019] Degradation of the elite is probably inevitable with the degradation of the social system that ensured their rise -- neoliberalism

The establishment just can’t handle it when people begin to figure things about neoliberalism out for themselves, so the desperate attempts to control the narrative once again surface...
Notable quotes:
"... "This country is filled with a patronage network of well off established people including Democrats who believe everything's fine as it is and are willing to shut their eyes to what's not working – the financial crisis of the working class, the racism underlying the for profit prison system and immigration system, the horrific endless regime change wars and the massive deregulation of banks on Bill Clinton's watch and much more, including the Climate Crisis." ..."
"... Like the Wolfowitz explanation of the Iraq War, Russiagate is the idea around which varied interests can be organized. Cold Warriors like to hate on Russia. It justifies arms spending and their own importance. Clintonistas need an excuse to distract from her being a loser. The DNC needs an excuse for manipulating the candidate selection in favor of donor interests. "Moderates" need a distraction from their ongoing refusal to address the interests of voters. ..."
"... Each generation of Americans frets that they will be the ones who fritter the republic away. At least once every decade, it is the sad lot of some journalist to draw strained parallels between the state of the nation and the last days of the Roman Republic ..."
"... If anything "Russophobia" (Or Russophenia, to be exact) is the sign that the US neoliberal elite feels that it is losing the level of control they are accustomed since Carter. They are panicking and are ready to the slide of governance model from the current "inverted totalitarism" model toward a more repressive regime. ..."
"... Although the question whether the postwar democratic republic model of governance (with the New Deal as the cornerstone in the USA) is compatible with the existence of Wall Street oligarchy and powerful intelligence agencies which serve them as much if not more then the state was probably answered in November, 1963. ..."
Aug 12, 2019 | economistsview.typepad.com

likbez -> anne... Monday, August 12, 2019 at 07:40 PM

Degradation of the elite is probably inevitable with the degradation of the social system that ensured their rise -- neoliberalism.

As in Roman saying: "Those whom the gods would like to destroy they first make mad".

But the deep, existential crisis of neoliberalism is real and is not going away, no matter how many times you chant Russia, Russia, Russia. Or China, China, China.

"This country is filled with a patronage network of well off established people including Democrats who believe everything's fine as it is and are willing to shut their eyes to what's not working – the financial crisis of the working class, the racism underlying the for profit prison system and immigration system, the horrific endless regime change wars and the massive deregulation of banks on Bill Clinton's watch and much more, including the Climate Crisis."

And even more lemmings of the "rentier class" just check their account in Vanguard or Fidelity and are satisfied when they are rising.

There are serious arguments in favor of viewing "Russophenia" as a defensive reaction on the crisis on neoliberalism which provides an easy explanation of the country ills.

In this sense it is similar to the propaganda of Iraq war, which was also designed as the kludge to cement cracks in the US society -- as in "war is the health of the state" ( although the desire to expropriate Iraq oil was strong too )

From https://consortiumnews.com/2019/08/11/russiagate-is-dead-but-for-the-political-establishment-it-is-still-the-new-42/

Mark Thomason , August 12, 2019 at 10:34

Like the Wolfowitz explanation of the Iraq War, Russiagate is the idea around which varied interests can be organized. Cold Warriors like to hate on Russia. It justifies arms spending and their own importance. Clintonistas need an excuse to distract from her being a loser. The DNC needs an excuse for manipulating the candidate selection in favor of donor interests. "Moderates" need a distraction from their ongoing refusal to address the interests of voters.

Fred C. Dobbs , August 12, 2019 at 07:37 PM
(It's Niall...)

No, this isn't the fall of Rome https://www.bostonglobe.com/opinion/2019/08/12/this-isn-fall-rome/34Uco0HivEVG8w0IZ7lpII/story.html?event=event25 via @BostonGlobe

Niall Ferguson - August 12

"A republic, madam -- if you can keep it." That was supposedly Benjamin Franklin's reply to a woman who asked him the result of the Constitutional Convention after it adjourned, in 1787.

Each generation of Americans frets that they will be the ones who fritter the republic away. At least once every decade, it is the sad lot of some journalist to draw strained parallels between the state of the nation and the last days of the Roman Republic. Since the election of Donald Trump in 2016, this has become more like an annual ritual. ...

likbez , August 12, 2019 at 07:54 PM
Fred,

I am afraid that nothing, or very little is left to preserve.

If anything "Russophobia" (Or Russophenia, to be exact) is the sign that the US neoliberal elite feels that it is losing the level of control they are accustomed since Carter. They are panicking and are ready to the slide of governance model from the current "inverted totalitarism" model toward a more repressive regime.

Witch hunts are always a sign of "tightening the screws" by the ruling elite.

Although the question whether the postwar democratic republic model of governance (with the New Deal as the cornerstone in the USA) is compatible with the existence of Wall Street oligarchy and powerful intelligence agencies which serve them as much if not more then the state was probably answered in November, 1963.

[Aug 08, 2019] Biden, Sanders, and Warren are the only candidates with support in the double digits

Notable quotes:
"... Warren has the best potential to grow ..."
"... Among the reasons why Biden, Sanders, and Warren will be difficult to topple from the top tier: a significant portion of their supporters say they have made up their minds about the race. ..."
"... This is especially the case with Sanders. Nearly half -- 48 percent -- of his supporters said they would definitely vote for him... ..."
Aug 08, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 07, 2019 at 05:42 AM

The top tier of Democrats in NH is
starting to solidify, and more poll takeaways
https://www.bostonglobe.com/metro/2019/08/06/the-top-tier-democrats-starting-solidify-and-more-poll-takeaways/y4SYgN0uzQPs9SZH0xYvjM/story.html?event=event25
via @BostonGlobe - August 6

A new poll out Tuesday on the New Hampshire Democratic presidential primary shows the outcome is anyone's guess between former vice president Joe Biden, Senator Bernie Sanders of Vermont, and Senator Elizabeth Warren of Massachusetts.

Beyond which candidate had what level of support in the first-in-the-nation presidential primary -- scheduled for February 2020 -- a deeper dive into the Suffolk University/Boston Globe poll provides a number of other big-picture takeaways.

The top tier is hard to crack

Biden, Sanders, and Warren are the only candidates with support in the double digits (21 percent, 17 percent, and 14 percent, respectively), and a closer read suggests that might not change anytime soon. Much of this has to do with the fact that a significant portion of their support is locked down. Nearly half of Sanders' and Biden's supporters in the poll say they their mind is made up and they aren't looking at supporting anyone else in the field. Something dramatic could occur, of course, but odds are that the status quo will remain for a while.

Further, if there are big changes in the race, the poll found that Warren, not someone else outside of the top three, is in the best position to benefit. Warren was the "second choice" of 21 percent of respondents. No one else was even close to her in that category.

While Sanders has support locked down now, and Warren has the best potential to grow , Biden, it appears, has his own lane of supporters that no other candidate is even contesting. Biden's support is very strong among older voters, moderates, and union members. For the most part, these voters aren't even looking at other options.

New Hampshire Democrats are moderate

For all the conversation about how far left the Democratic Party has moved in recent years, the poll shows likely Democratic primary voters have not moved the same way. Yes, a majority back the Green New Deal concept and Medicare for All, but more than 50 percent describe themselves as either moderate, conservative, or very conservative. This is compared with the 45 percent who say they are either liberal or very liberal. While this might seem like a near tie, consider this survey polled likely Democratic voters -- the party's base -- which is the most liberal. ...

Biden, Sanders, and Warren top
post-debate survey of NH Democrats
https://www.bostonglobe.com/news/politics/2019/08/06/biden-sanders-and-warren-top-postdebate-survey-democrats/OQFDiH2UeFSbEj0i4DRNCL/story.html?event=event25 via @BostonGlobe

... In fourth place is Senator Kamala Harris of California at 8 percent, followed by South Bend, Ind., Mayor Pete Buttigieg at 6 percent and Representative Tulsi Gabbard of Hawaii at 3 percent.

Among the reasons why Biden, Sanders, and Warren will be difficult to topple from the top tier: a significant portion of their supporters say they have made up their minds about the race.

This is especially the case with Sanders. Nearly half -- 48 percent -- of his supporters said they would definitely vote for him...

Graphic: See key results from the Suffolk/Globe poll
https://www.bostonglobe.com/news/politics/2019/08/06/poll-suffolk-university-boston-globe-poll-puts-biden-atop-democratic-primary/c5k6eDUNmU5VlDWsAU91yM/story.html?event=event25 via @BostonGlobe

ilsm -> Fred C. Dobbs... , August 07, 2019 at 09:45 AM
Biden seems to have the democrat "NH state machine" who did okay in 2016, the delegation all democrats in lock step with the crooked DNC.

Sad that Bernie has to be hitched to the saddest excuse for a party since the Nixon GOP.

[Aug 08, 2019] Revised Profit Data Are Good News But Don't Reverse Decades of Wage Stagnation

Notable quotes:
"... corporations were able to increase their share of income at the expense of labor, even with an unemployment rate below 4 percent. ..."
Aug 08, 2019 | economistsview.typepad.com

anne , August 05, 2019 at 11:03 AM

http://cepr.net/publications/op-eds-columns/revised-profit-data-are-good-news-but-don-t-reverse-decades-of-wage-stagnation

August 5, 2019

Revised Profit Data Are Good News But Don't Reverse Decades of Wage Stagnation
By Dean Baker

In July, the U.S. Department of Commerce released data showing GDP growth had slowed sharply in the second quarter. Most economic reporting appropriately highlighted the data showing that we were not getting the investment boom that the Republicans had promised would result from their tax cut.

But there was also an important item in the annual GDP data revisions that many overlooked in the report: The revised profit data for 2018 showed that the profit share of corporate income had fallen by 0.4 percentage points from the prior year. This is a big deal for two reasons: It means that workers are now clearly getting their share of the gains from growth, and it tells us an important story about the structure of the economy.

On the first point, we know that the wages of the typical worker have not kept pace with productivity growth over the last four decades. While productivity growth has not been great over most of this period (1995-2005 was the exception), wages have lagged behind even the slow productivity growth over most of this period.

The one exception was the years of low unemployment from 1996 to 2001, when the wages of the typical worker rose in line with productivity growth. With unemployment again falling to relatively low levels in the last four years, many of us expected that wages would again be keeping pace with productivity growth.

The earlier data on profits suggested that this might not be the case. It showed a small increase in the profit share of corporate income, suggesting that corporations were able to increase their share of income at the expense of labor, even with an unemployment rate below 4 percent.

The revised data indicate this is not the case. The low unemployment rate is creating an environment in which workers have enough bargaining power to get their share of productivity gains and even gain back some of the income share lost in the Great Recession.

This brings up the second issue. Most of the upward redistribution over this period was not from ordinary workers to profits, but rather to high-end workers. The big winners in the last four decades have been CEOs, hedge fund and private equity partners, and at a somewhat lower level, highly paid professionals like doctors and dentists.

The shift to profits takes place only in this century after much of the upward redistribution had already occurred. One obvious explanation was the weak labor market following the Great Recession. With unemployment remaining stubbornly high, wages were not keeping pace with productivity growth or even inflation. An alternative explanation was that growing monopolization of major sectors (think of Google, Facebook and Amazon) was allowing capital to gain at the expense of labor.

The revised profit data seem to support the first story. In the last four years, the profit share has fallen by 3.2 percentage points. (It had dropped another percentage point in the first quarter of 2019, although the quarterly data are highly erratic.) At this rate, in four more years, the run-up in profit shares in this century will be completely reversed.

If the weak labor market following the Great Recession is the story of the rise in profit shares, there is still the problem of the run-up in profit share in 2003-2007, the years preceding the Great Recession. One explanation is that the profits recorded in these years were inflated by phony profits recorded by the financial sector.

Banks like Citigroup and Bank of America were recording large profits in these years on loans that subsequently went bad. This would be equivalent to a business booking large profits on sales to customers that did not exist. Their books would show large profits when the sales were recorded, but then they would show large losses when the business had to acknowledge that the customer didn't exist, and therefore write off a previously booked sale.

Profits that are based on sales to nonexistent customers don't come at the expense of workers, nor do profits that are booked on loans that go bad. (The subsequent recession was, of course, very much at the expense of workers.) For this reason, we should be somewhat skeptical of the shift from wages to profits in the years of the housing bubble.

In any case, the revised profits data are good news. They show a tight labor market is working the way it is supposed to. But this doesn't mean everyone is doing great. You don't reverse four decades of wage stagnation with four relatively good years.

However, things are at least moving in the right direction now, and that is good news. That has not generally been the case over the last 40 years.

[Aug 05, 2019] The USA very much reminds me the USSR -- empire in 1970th with its stupid, degenerated and cannibalistic elite.

Aug 05, 2019 | economistsview.typepad.com

anne -> anne... , August 04, 2019 at 03:28 PM

We won the Cold War...

[ Thinking through this Brad DeLong post, I am left with the same feeling I had after reading "The End of History" by Francis Fukuyama. History did not end with the division of the Soviet Union and evidently neither did the Cold War since the United States from at least as early as the presidency of George Bush was treating Russia as though the Cold War was continuing and this continued with Obama and Trump and now China is being openly included though this too can be traced easily back to the Clinton presidency.

DeLong is wrong, the Cold War is unfortunately not over and won. ]

likbez -> anne... , August 04, 2019 at 10:28 PM
> We won the Cold War...

I would not be so glib.

IMHO both major parties in the Cold war lost and the USA is just another loser like now defunct the USSR. It is China and Germany which won the Cold War, emerging as two major economic (and in case of China political) powers.

The USSR was a theocratic state, a self-destructing utopia which nevertheless served a very useful role -- as a protection mechanism against cannibalistic instincts of the USA elite.

The key here is that after its dissolution the USA elite stated looting its own people. Which they were afraid of doing while the USSR was present of the world arena.

But Bolshevism was dead after WWII and eventually Soviet Nomenklatura (and first of all KGB brass) changed sides and adopted neoliberalism, privatizing the country resources. The USA helped in this process (bribing considerable part of the elite and first of all Party and KGB elite including some members of Politburo), but the writing was on the wall.

But after that the stupidity of the USA neoliberal elite ruled supreme. Instead of cultivating former USSR as a strategic ally by adopting something like Marshall plan, a war criminal and sex addict Bill Clinton pursued the short sited policy of trying to loot and kick a Russia into the vassal state sowing the dragon's teeth.

Looting Russia after the dissolution (via Harvard mafia; http://www.softpanorama.org/Skeptics/Pseudoscience/harvard_mafia.shtml ) closed the opportunity of having strategic ally and eventually created a determined adversary. Which will patiently wait when due to its own stupidity the USA will show the vulnerable side and then strike.

While after the dissolution of the USSR most people in the USSR were favorably disposed toward the USA, now the situation drastically changed. ( see http://euromaidanpress.com/2016/05/31/why-americans-are-stupid-according-to-russians/ )

And that alone is a huge geopolitical defeat of a war criminal (by Nuremberg standards https://en.wikipedia.org/wiki/Nuremberg_principles) Bill Clinton and his administration making him one of the most stupid and destructive USA president in the country history.

He essentially adopted British empire stance toward Russia. Now we have emerging potential alliance of Russia and China which complicates the efforts for the preservation of the USA-centered global neoliberal empire. The USA no longer can dictate it will against this alliance and that creates additional cracks in the empire façade visible in how EU reacts to China tariffs and Iran sanctions.

The USA dominance will not evaporate in one year or even in a decade, but it is in decline and now is really tested by China. Trump dysfunctional attempt to fight for the perseveration of the empire on three fronts (against Russia, China and Iran) is not very successful, to say the least.

And people whom he hired ( or who were hired by his handlers) are just a continuation of the line of Cold War warriors from three previous administration (starting from unforgettable Madeleine "not so bright" Albright). That's a real gallery of dinosaurs, if you ask me. Looks like Washington elite lives in its own kingdom of illusions and this echo chamber became completely disconnected with the reality. Attempt to push despicable and corrupt stooges of neoliberal status quo like Kamala Harris as a Democratic Party candidate in 2020 is just another manifestation of the same trend.

Also "neoliberal greed" (TM) destroyed the country manufacturing and without strong manufacturing capabilities research capabilities are hampered.

For example, the USA neoliberals managed substantially undermine the USA lead in IT and hardware.

Also using primarily financial instruments to ensure its dominance is a sign of the empire in decline. The same it true about the existence of huge parasitic, rent oriented finance. That also suggests that the dollar dominance can't last forever.

Much depends when the regime of "cheap oil" (let's say below $100 per barrel) ends. In any case, even with $50-$60 oil the secular stagnation is fact of the USA economic life. People just do not discuss it much anymore, but that's another strategic threat to neoliberalism and to the USA-centered neoliberal empire. Attempt to grab Venezuela resources is a demonstration that this treat is taken seriously.

As a side note, Neoliberalism as a social system, surprisingly managed to survive 2008 crisis largely intact converting itself into sudo-theocratic regime ( despite the fact that ideology was destroyed). It also successfully counterattacked in Argentina, Brazil, and France. Merkel, who is hard core neoliberal, managed to survive in Germany...

So it looks like it does have some staying power.

See "The Strange Non-Death of Neoliberalism" by Colin Crouch for an introduction to this strange phenomenon.

Still with the collapse of neoliberal ideology (essentially Trotskyism for the rich) the USA faces very uncertain future and supersized military expenses (essentially another form of looting of common people) does not changed the precarious situation the USA elite got the county. Neoliberal elite is not longer can rule as usual and the USA people want change. In other words we have what Marxists used to call a "revolutionary situation". It very much reminds me the USSR -- empire in 1970th with its stupid, degenerated and cannibalistic elite.

anne -> anne... , August 04, 2019 at 05:02 PM
We won the Cold War...

[ This assertion by DeLong, then leaves me wondering what winning the Cold War then or now would mean. We have, for instance, now arbitrarily set aside 2 Cold War nuclear arms treaties since 2001, and are building more nuclear capability when we have weaponry enough to decimate much of the earth, as does Russia.

Since Russia is now routinely considered a strategic adversary or threatening, we could not of course have won the Cold War. We routinely accuse supposed political opponents of being Russian sympathizers.

DeLong must be mistaken, unless there is a meaning of Cold War winning that is unclear to me. ]

[Aug 04, 2019] Neoliberalism Political Success, Economic Failure

Highly recommended!
Neoliberalism is an amazing ideological construct: secular religion designed for the rich. The level of brainwashing of population under neoliberalism probably exceeds achievable in a long run under Bolshevism and Nazism.
Notable quotes:
"... Neoliberalism's premise is that free markets can regulate themselves; that government is inherently incompetent, captive to special interests, and an intrusion on the efficiency of the market; that in distributive terms, market outcomes are basically deserved; and that redistribution creates perverse incentives by punishing the economy's winners and rewarding its losers. So government should get out of the market's way. ..."
"... By the 1990s, even moderate liberals had been converted to the belief that social objectives can be achieved by harnessing the power of markets. Intermittent periods of governance by Democratic presidents slowed but did not reverse the slide to neoliberal policy and doctrine. The corporate wing of the Democratic Party approved. ..."
"... Now, after nearly half a century, the verdict is in. Virtually every one of these policies has failed, even on their own terms. Enterprise has been richly rewarded, taxes have been cut, and regulation reduced or privatized. The economy is vastly more unequal, yet economic growth is slower and more chaotic than during the era of managed capitalism. Deregulation has produced not salutary competition, but market concentration. Economic power has resulted in feedback loops of political power, in which elites make rules that bolster further concentration. ..."
"... The grand neoliberal experiment of the past 40 years has demonstrated that markets in fact do not regulate themselves. Managed markets turn out to be more equitable and more efficient. Yet the theory and practical influence of neoliberalism marches splendidly on, because it is so useful to society's most powerful people -- as a scholarly veneer to what would otherwise be a raw power grab. The British political economist Colin Crouch captured this anomaly in a book nicely titled The Strange Non-Death of Neoliberalism . Why did neoliberalism not die? As Crouch observed, neoliberalism failed both as theory and as policy, but succeeded superbly as power politics for economic elites. ..."
"... As the great political historian Karl Polanyi warned, when markets overwhelm society, ordinary people often turn to tyrants. In regimes that border on neofascist, klepto-capitalists get along just fine with dictators, undermining the neoliberal premise of capitalism and democracy as complements. Several authoritarian thugs, playing on tribal nationalism as the antidote to capitalist cosmopolitanism, are surprisingly popular. ..."
"... The theory of maximizing shareholder value was deployed to undermine the entire range of financial regulation and workers' rights. Cost-benefit analysis, emphasizing costs and discounting benefits, was used to discredit a good deal of health, safety, and environmental regulation. Public choice theory, associated with the economist James Buchanan and an entire ensuing school of economics and political science, was used to impeach democracy itself, on the premise that policies were hopelessly afflicted by "rent-seekers" and "free-riders." ..."
"... Human capital theory, another variant of neoliberal application of markets to partly social questions, justified deregulating labor markets and crushing labor unions. Unions supposedly used their power to get workers paid more than their market worth. Likewise minimum wage laws. But the era of depressed wages has actually seen a decline in rates of productivity growth. Conversely, does any serious person think that the inflated pay of the financial moguls who crashed the economy accurately reflects their contribution to economic activity? In the case of hedge funds and private equity, the high incomes of fund sponsors are the result of transfers of wealth and income from employees, other stakeholders, and operating companies to the fund managers, not the fruits of more efficient management. ..."
"... Financial deregulation is neoliberalism's most palpable deregulatory failure, but far from the only one. Electricity deregulation on balance has increased monopoly power and raised costs to consumers, but has failed to offer meaningful "shopping around" opportunities to bring down prices. We have gone from regulated monopolies with predictable earnings, costs, wages, and consumer protections to deregulated monopolies or oligopolies with substantial pricing power. Since the Bell breakup, the telephone system tells a similar story of re-concentration, dwindling competition, price-gouging, and union-bashing. ..."
"... As regards clear language and definitions, I much prefer Michael Hudson's insistence that, to the liberal economists, free markets were markets free from rent seeking, while to the neoliberals free markets are free from government regulation. ..."
"... In a political system where the reputedly "labor" party would rather lose with their bribe-taking warmongering Goldwater girl than win with a people's advocate, Houston we have a problem. ..."
"... "Growth for the sake of growth is the ideology of the cancer cell." ..."
"... Neoliberalism gave liberals an excuse to sell out in the name of "fresh thinking." Meanwhile the vast working class had become discredited Archie Bunkers in the eyes of the intellectuals after Vietnam and the Civil Rights struggles. ..."
"... I'd add two other consequences of neoliberalism. One is the increasing alienation of citizens from the mechanism for provision of the basic necessities of life. ..."
"... As Phillip Mirowski patiently explains in Never Let a Serious Crisis Go to Waste, neoliberalism is not laissez faire. Neoliberal desire a strong government to implement their market based nirvana, as long as they control government. ..."
Aug 04, 2019 | www.nakedcapitalism.com

By Robert Kuttner, The American Prospect. Reposted from Alternet .

Since the late 1970s, we've had a grand experiment to test the claim that free markets really do work best. This resurrection occurred despite the practical failure of laissez-faire in the 1930s, the resulting humiliation of free-market theory, and the contrasting success of managed capitalism during the three-decade postwar boom.

Yet when growth faltered in the 1970s, libertarian economic theory got another turn at bat. This revival proved extremely convenient for the conservatives who came to power in the 1980s. The neoliberal counterrevolution, in theory and policy, has reversed or undermined nearly every aspect of managed capitalism -- from progressive taxation, welfare transfers, and antitrust, to the empowerment of workers and the regulation of banks and other major industries.

Neoliberalism's premise is that free markets can regulate themselves; that government is inherently incompetent, captive to special interests, and an intrusion on the efficiency of the market; that in distributive terms, market outcomes are basically deserved; and that redistribution creates perverse incentives by punishing the economy's winners and rewarding its losers. So government should get out of the market's way.

By the 1990s, even moderate liberals had been converted to the belief that social objectives can be achieved by harnessing the power of markets. Intermittent periods of governance by Democratic presidents slowed but did not reverse the slide to neoliberal policy and doctrine. The corporate wing of the Democratic Party approved.

Now, after nearly half a century, the verdict is in. Virtually every one of these policies has failed, even on their own terms. Enterprise has been richly rewarded, taxes have been cut, and regulation reduced or privatized. The economy is vastly more unequal, yet economic growth is slower and more chaotic than during the era of managed capitalism. Deregulation has produced not salutary competition, but market concentration. Economic power has resulted in feedback loops of political power, in which elites make rules that bolster further concentration.

The culprit isn't just "markets" -- some impersonal force that somehow got loose again. This is a story of power using theory. The mixed economy was undone by economic elites, who revised rules for their own benefit. They invested heavily in friendly theorists to bless this shift as sound and necessary economics, and friendly politicians to put those theories into practice.

Recent years have seen two spectacular cases of market mispricing with devastating consequences: the near-depression of 2008 and irreversible climate change. The economic collapse of 2008 was the result of the deregulation of finance. It cost the real U.S. economy upwards of $15 trillion (and vastly more globally), depending on how you count, far more than any conceivable efficiency gain that might be credited to financial innovation. Free-market theory presumes that innovation is necessarily benign. But much of the financial engineering of the deregulatory era was self-serving, opaque, and corrupt -- the opposite of an efficient and transparent market.

The existential threat of global climate change reflects the incompetence of markets to accurately price carbon and the escalating costs of pollution. The British economist Nicholas Stern has aptly termed the worsening climate catastrophe history's greatest case of market failure. Here again, this is not just the result of failed theory. The entrenched political power of extractive industries and their political allies influences the rules and the market price of carbon. This is less an invisible hand than a thumb on the scale. The premise of efficient markets provides useful cover.

The grand neoliberal experiment of the past 40 years has demonstrated that markets in fact do not regulate themselves. Managed markets turn out to be more equitable and more efficient. Yet the theory and practical influence of neoliberalism marches splendidly on, because it is so useful to society's most powerful people -- as a scholarly veneer to what would otherwise be a raw power grab. The British political economist Colin Crouch captured this anomaly in a book nicely titled The Strange Non-Death of Neoliberalism . Why did neoliberalism not die? As Crouch observed, neoliberalism failed both as theory and as policy, but succeeded superbly as power politics for economic elites.

The neoliberal ascendance has had another calamitous cost -- to democratic legitimacy. As government ceased to buffer market forces, daily life has become more of a struggle for ordinary people. The elements of a decent middle-class life are elusive -- reliable jobs and careers, adequate pensions, secure medical care, affordable housing, and college that doesn't require a lifetime of debt. Meanwhile, life has become ever sweeter for economic elites, whose income and wealth have pulled away and whose loyalty to place, neighbor, and nation has become more contingent and less reliable.

Large numbers of people, in turn, have given up on the promise of affirmative government, and on democracy itself. After the Berlin Wall came down in 1989, ours was widely billed as an era when triumphant liberal capitalism would march hand in hand with liberal democracy. But in a few brief decades, the ostensibly secure regime of liberal democracy has collapsed in nation after nation, with echoes of the 1930s.

As the great political historian Karl Polanyi warned, when markets overwhelm society, ordinary people often turn to tyrants. In regimes that border on neofascist, klepto-capitalists get along just fine with dictators, undermining the neoliberal premise of capitalism and democracy as complements. Several authoritarian thugs, playing on tribal nationalism as the antidote to capitalist cosmopolitanism, are surprisingly popular.

It's also important to appreciate that neoliberalism is not laissez-faire. Classically, the premise of a "free market" is that government simply gets out of the way. This is nonsensical, since all markets are creatures of rules, most fundamentally rules defining property, but also rules defining credit, debt, and bankruptcy; rules defining patents, trademarks, and copyrights; rules defining terms of labor; and so on. Even deregulation requires rules. In Polanyi's words, "laissez-faire was planned."

The political question is who gets to make the rules, and for whose benefit. The neoliberalism of Friedrich Hayek and Milton Friedman invoked free markets, but in practice the neoliberal regime has promoted rules created by and for private owners of capital, to keep democratic government from asserting rules of fair competition or countervailing social interests. The regime has rules protecting pharmaceutical giants from the right of consumers to import prescription drugs or to benefit from generics. The rules of competition and intellectual property generally have been tilted to protect incumbents. Rules of bankruptcy have been tilted in favor of creditors. Deceptive mortgages require elaborate rules, written by the financial sector and then enforced by government. Patent rules have allowed agribusiness and giant chemical companies like Monsanto to take over much of agriculture -- the opposite of open markets. Industry has invented rules requiring employees and consumers to submit to binding arbitration and to relinquish a range of statutory and common-law rights.

Neoliberalism as Theory, Policy, and Power

It's worth taking a moment to unpack the term "neoliberalism." The coinage can be confusing to American ears because the "liberal" part refers not to the word's ordinary American usage, meaning moderately left-of-center, but to classical economic liberalism otherwise known as free-market economics. The "neo" part refers to the reassertion of the claim that the laissez-faire model of the economy was basically correct after all.

Few proponents of these views embraced the term neoliberal . Mostly, they called themselves free-market conservatives. "Neoliberal" was a coinage used mainly by their critics, sometimes as a neutral descriptive term, sometimes as an epithet. The use became widespread in the era of Margaret Thatcher and Ronald Reagan.

To add to the confusion, a different and partly overlapping usage was advanced in the 1970s by the group around the Washington Monthly magazine. They used "neoliberal" to mean a new, less statist form of American liberalism. Around the same time, the term neoconservative was used as a self-description by former liberals who embraced conservatism, on cultural, racial, economic, and foreign-policy grounds. Neoconservatives were neoliberals in economics.

Beginning in the 1970s, resurrected free-market theory was interwoven with both conservative politics and significant investments in the production of theorists and policy intellectuals. This occurred not just in well-known conservative think tanks such as the American Enterprise Institute, Heritage, Cato, and the Manhattan Institute, but through more insidious investments in academia. Lavishly funded centers and tenured chairs were underwritten by the Olin, Scaife, Bradley, and other far-right foundations to promote such variants of free-market theory as law and economics, public choice, rational choice, cost-benefit analysis, maximize-shareholder-value, and kindred schools of thought. These theories colonized several academic disciplines. All were variations on the claim that markets worked and that government should get out of the way.

Each of these bodies of sub-theory relied upon its own variant of neoliberal ideology. An intensified version of the theory of comparative advantage was used not just to cut tariffs but to use globalization as all-purpose deregulation. The theory of maximizing shareholder value was deployed to undermine the entire range of financial regulation and workers' rights. Cost-benefit analysis, emphasizing costs and discounting benefits, was used to discredit a good deal of health, safety, and environmental regulation. Public choice theory, associated with the economist James Buchanan and an entire ensuing school of economics and political science, was used to impeach democracy itself, on the premise that policies were hopelessly afflicted by "rent-seekers" and "free-riders."

Click here to read how Robert Kuttner has been unmasking the fallacies of neoliberalism for decades

Market failure was dismissed as a rare special case; government failure was said to be ubiquitous. Theorists worked hand in glove with lobbyists and with public officials. But in every major case where neoliberal theory generated policy, the result was political success and economic failure.

For example, supply-side economics became the justification for tax cuts, on the premise that taxes punished enterprise. Supposedly, if taxes were cut, especially taxes on capital and on income from capital, the resulting spur to economic activity would be so potent that deficits would be far less than predicted by "static" economic projections, and perhaps even pay for themselves. There have been six rounds of this experiment, from the tax cuts sponsored by Jimmy Carter in 1978 to the immense 2017 Tax Cuts and Jobs Act signed by Donald Trump. In every case some economic stimulus did result, mainly from the Keynesian jolt to demand, but in every case deficits increased significantly. Conservatives simply stopped caring about deficits. The tax cuts were often inefficient as well as inequitable, since the loopholes steered investment to tax-favored uses rather than the most economically logical ones. Dozens of America's most profitable corporations paid no taxes.

Robert Bork's "antitrust paradox," holding that antitrust enforcement actually weakened competition, was used as the doctrine to sideline the Sherman and Clayton Acts. Supposedly, if government just got out of the way, market forces would remain more competitive because monopoly pricing would invite innovation and new entrants to the market. In practice, industry after industry became more heavily concentrated. Incumbents got in the habit of buying out innovators or using their market power to crush them. This pattern is especially insidious in the tech economy of platform monopolies, where giants that provide platforms, such as Google and Amazon, use their market power and superior access to customer data to out-compete rivals who use their platforms. Markets, once again, require rules beyond the benign competence of the market actors themselves. Only democratic government can set equitable rules. And when democracy falters, undemocratic governments in cahoots with corrupt private plutocrats will make the rules.

Human capital theory, another variant of neoliberal application of markets to partly social questions, justified deregulating labor markets and crushing labor unions. Unions supposedly used their power to get workers paid more than their market worth. Likewise minimum wage laws. But the era of depressed wages has actually seen a decline in rates of productivity growth. Conversely, does any serious person think that the inflated pay of the financial moguls who crashed the economy accurately reflects their contribution to economic activity? In the case of hedge funds and private equity, the high incomes of fund sponsors are the result of transfers of wealth and income from employees, other stakeholders, and operating companies to the fund managers, not the fruits of more efficient management.

There is a broad literature discrediting this body of pseudo-scholarly work in great detail. Much of neoliberalism represents the ever-reliable victory of assumption over evidence. Yet neoliberal theory lived on because it was so convenient for elites, and because of the inertial power of the intellectual capital that had been created. The well-funded neoliberal habitat has provided comfortable careers for two generations of scholars and pseudo-scholars who migrate between academia, think tanks, K Street, op-ed pages, government, Wall Street, and back again. So even if the theory has been demolished both by scholarly rebuttal and by events, it thrives in powerful institutions and among their political allies.

The Practical Failure of Neoliberal Policies

Financial deregulation is neoliberalism's most palpable deregulatory failure, but far from the only one. Electricity deregulation on balance has increased monopoly power and raised costs to consumers, but has failed to offer meaningful "shopping around" opportunities to bring down prices. We have gone from regulated monopolies with predictable earnings, costs, wages, and consumer protections to deregulated monopolies or oligopolies with substantial pricing power. Since the Bell breakup, the telephone system tells a similar story of re-concentration, dwindling competition, price-gouging, and union-bashing.

Air travel has been a poster child for advocates of deregulation, but the actual record is mixed at best. Airline deregulation produced serial bankruptcies of every major U.S. airline, often at the cost of worker pay and pension funds. Ticket prices have declined on average over the past two decades, but the traveling public suffers from a crazy quilt of fares, declining service, shrinking seats and legroom, and exorbitant penalties for the perfectly normal sin of having to change plans. Studies have shown that fares actually declined at a faster rate in the 20 years before deregulation in 1978 than in the 20 years afterward, because the prime source of greater efficiency in airline travel is the introduction of more fuel-efficient planes. The roller-coaster experience of airline profits and losses has reduced the capacity of airlines to purchase more fuel-efficient aircraft, and the average age of the fleet keeps increasing. The use of "fortress hubs" to defend market pricing power has reduced the percentage of nonstop flights, the most efficient way to fly from one point to another.

In addition to deregulation, three prime areas of practical neoliberal policies are the use of vouchers as "market-like" means to social goals, the privatization of public services, and the use of tax subsides rather than direct outlays. In every case, government revenues are involved, so this is far from a free market to begin with. But the premise is that market disciplines can achieve public purposes more efficiently than direct public provision.

The evidence provides small comfort for these claims. One core problem is that the programs invariably give too much to the for-profit middlemen at the expense of the intended beneficiaries. A related problem is that the process of using vouchers and contracts invites corruption. It is a different form of "rent-seeking" -- pursuit of monopoly profits -- than that attributed to government by public choice theorists, but corruption nonetheless. Often, direct public provision is far more transparent and accountable than a web of contractors.

A further problem is that in practice there is often far less competition than imagined, because of oligopoly power, vendor lock-in, and vendor political influence. These experiments in marketization to serve social goals do not operate in some Platonic policy laboratory, where the only objective is true market efficiency yoked to the public good. They operate in the grubby world of practical politics, where the vendors are closely allied with conservative politicians whose purposes may be to discredit social transfers entirely, or to reward corporate allies, or to benefit from kickbacks either directly or as campaign contributions.

Privatized prisons are a case in point. A few large, scandal-ridden companies have gotten most of the contracts, often through political influence. Far from bringing better quality and management efficiency, they have profited by diverting operating funds and worsening conditions that were already deplorable, and finding new ways to charge inmates higher fees for necessary services such as phone calls. To the extent that money was actually saved, most of the savings came from reducing the pay and professionalism of guards, increasing overcrowding, and decreasing already inadequate budgets for food and medical care.

A similar example is the privatization of transportation services such as highways and even parking meters. In several Midwestern states, toll roads have been sold to private vendors. The governor who makes the deal gains a temporary fiscal windfall, while drivers end up paying higher tolls often for decades. Investment bankers who broker the deal also take their cut. Some of the money does go into highway improvements, but that could have been done more efficiently in the traditional way via direct public ownership and competitive bidding.

Housing vouchers substantially reward landlords who use the vouchers to fill empty houses with poor people until the neighborhood gentrifies, at which point the owner is free to quit the program and charge market rentals. Thus public funds are used to underwrite a privately owned, quasi-social housing sector -- whose social character is only temporary. No permanent social housing is produced despite the extensive public outlay. The companion use of tax incentives to attract passive investment in affordable housing promotes economically inefficient tax shelters, and shunts public funds into the pockets of the investors -- money that might otherwise have gone directly to the housing.

The Affordable Care Act is a form of voucher. But the regulated private insurance markets in the ACA have not fully lived up to their promise, in part because of the extensive market power retained by private insurers and in part because the right has relentlessly sought to sabotage the program -- another political feedback loop. The sponsors assumed that competition would lower costs and increase consumer choice. But in too many counties, there are three or fewer competing plans, and in some cases just one.

As more insurance plans and hospital systems become for-profit, massive investment goes into such wasteful activities as manipulation of billing, "risk selection," and other gaming of the rules. Our mixed-market system of health care requires massive regulation to work with tolerable efficiency. In practice, this degenerates into an infinite regress of regulator versus commercial profit-maximizer, reminiscent of Mad magazine's "Spy versus Spy," with the industry doing end runs to Congress to further rig the rules. Straight-ahead public insurance such as Medicare is generally far more efficient.

An extensive literature has demonstrated that for-profit voucher schools do no better and often do worse than comparable public schools, and are vulnerable to multiple forms of gaming and corruption. Proprietors of voucher schools are superb at finding ways of excluding costly special-needs students, so that those costs are imposed on what remains of public schools; they excel at gaming test results. While some voucher and charter schools, especially nonprofit ones, sometimes improve on average school performance, so do many public schools. The record is also muddied by the fact that many ostensibly nonprofit schools contract out management to for-profit companies.

Tax preferences have long been used ostensibly to serve social goals. The Earned Income Tax Credit is considered one of the more successful cases of using market-like measures -- in this case a refundable tax credit -- to achieve the social goal of increasing worker take-home pay. It has also been touted as the rare case of bipartisan collaboration. Liberals get more money for workers. Conservatives get to reward the deserving poor, since the EITC is conditioned on employment. Conservatives get a further ideological win, since the EITC is effectively a wage subsidy from the government, but is experienced as a tax refund rather than a benefit of government.

Recent research, however, shows that the EITC is primarily a subsidy of low-wage employers, who are able to pay their workers a lot less than a market-clearing wage. In industries such as nursing homes or warehouses, where many workers qualified for the EITC work side by side with ones not eligible, the non-EITC workers get substandard wages. The existence of the EITC depresses the level of the wages that have to come out of the employer's pocket.

Neoliberalism's Influence on Liberals

As free-market theory resurged, many moderate liberals embraced these policies. In the inflationary 1970s, regulation became a scapegoat that supposedly deterred salutary price competition. Some, such as economist Alfred Kahn, President Carter's adviser on deregulation, supported deregulation on what he saw as the merits. Other moderates supported neoliberal policies opportunistically, to curry favor with powerful industries and donors. Market-like policies were also embraced by liberals as a tactical way to find common ground with conservatives.

Several forms of deregulation -- of airlines, trucking, and electric power -- began not under Reagan but under Carter. Financial deregulation took off under Bill Clinton. Democratic presidents, as much as Republicans, promoted trade deals that undermined social standards. Cost-benefit analysis by the Office of Information and Regulatory Affairs (OIRA) was more of a choke point under Barack Obama than under George W. Bush.

"Command and control" became an all-purpose pejorative for disparaging perfectly sensible and efficient regulation. "Market-like" became a fashionable concept, not just on the free-market right but on the moderate left. Cass Sunstein, who served as Obama's anti-regulation czar,uses the example of "nudges" as a more market-like and hence superior alternative to direct regulation, though with rare exceptions their impact is trivial. Moreover, nudges only work in tandem with regulation.

There are indeed some interventionist policies that use market incentives to serve social goals. But contrary to free-market theory, the market-like incentives first require substantial regulation and are not a substitute for it. A good example is the Clean Air Act Amendments of 1990, which used tradable emission rights to cut the output of sulfur dioxide, the cause of acid rain. This was supported by both the George H.W. Bush administration and by leading Democrats. But before the trading regime could work, Congress first had to establish permissible ceilings on sulfur dioxide output -- pure command and control.

There are many other instances, such as nutrition labeling, truth-in-lending, and disclosure of EPA gas mileage results, where the market-like premise of a better-informed consumer complements command regulation but is no substitute for it. Nearly all of the increase in fuel efficiency, for example, is the result of command regulations that require auto fleets to hit a gas mileage target. The fact that EPA gas mileage figures are prominently disclosed on new car stickers may have modest influence, but motor fuels are so underpriced that car companies have success selling gas-guzzlers despite the consumer labeling.

Politically, whatever rationale there was for liberals to make common ground with libertarians is now largely gone. The authors of the 2017 Tax Cuts and Jobs Act made no attempt to meet Democrats partway; they excluded the opposition from the legislative process entirely. This was opportunistic tax cutting for elites, pure and simple. The right today also abandoned the quest for a middle ground on environmental policy, on anti-poverty policy, on health policy -- on virtually everything. Neoliberal ideology did its historic job of weakening intellectual and popular support for the proposition that affirmative government can better the lives of citizens and that the Democratic Party is a reliable steward of that social compact. Since Reagan, the right's embrace of the free market has evolved from partly principled idealism into pure opportunism and obstruction.

Neoliberalism and Hyper-Globalism

The post-1990 rules of globalization, supported by conservatives and moderate liberals alike, are the quintessence of neoliberalism. At Bretton Woods in 1944, the use of fixed exchange rates and controls on speculative private capital, plus the creation of the IMFand World Bank, were intended to allow member countries to practice national forms of managed capitalism, insulated from the destructive and deflationary influences of short-term speculative private capital flows. As doctrine and power shifted in the 1970s, the IMF, the World Bank, and later the WTO, which replaced the old GATT, mutated into their ideological opposite. Rather than instruments of support for mixed national economies, they became enforcers of neoliberal policies.

The standard package of the "Washington Consensus" of approved policies for developing nations included demands that they open their capital markets to speculative private finance, as well as cutting taxes on capital, weakening social transfers, and gutting labor regulation and public ownership. But private capital investment in poor countries proved to be fickle. The result was often excessive inflows during the boom part of the cycle and punitive withdrawals during the bust -- the opposite of the patient, long-term development capital that these countries needed and that was provided by the World Bank of an earlier era. During the bust phase, the IMFtypically imposes even more stringent neoliberal demands as the price of financial bailouts, including perverse budgetary austerity, supposedly to restore the confidence of the very speculative capital markets responsible for the boom-bust cycle.

Dozens of nations, from Latin America to East Asia, went through this cycle of boom, bust, and then IMF pile-on. Greece is still suffering the impact. After 1990, hyper-globalism also included trade treaties whose terms favored multinational corporations. Traditionally, trade agreements had been mainly about reciprocal reductions of tariffs. Nations were free to have whatever brand of regulation, public investment, or social policies they chose. With the advent of the WTO, many policies other than tariffs were branded as trade distorting, even as takings without compensation. Trade deals were used to give foreign capital free access and to dismantle national regulation and public ownership. Special courts were created in which foreign corporations and investors could do end runs around national authorities to challenge regulation for impeding commerce.

At first, the sponsors of the new trade regime tried to claim the successful economies of East Asia as evidence of the success of the neoliberal recipe. Supposedly, these nations had succeeded by pursuing "export-led growth," exposing their domestic economies to salutary competition. But these claims were soon exposed as the opposite of what had actually occurred. In fact, Japan, South Korea, smaller Asian nations, and above all China had thrived by rejecting every major tenet of neoliberalism. Their capital markets were tightly regulated and insulated from foreign speculative capital. They developed world-class industries as state-led cartels that favored domestic production and supply. East Asia got into trouble only when it followed IMFdictates to throw open capital markets, and in the aftermath they recovered by closing those markets and assembling war chests of hard currency so that they'd never again have to go begging to the IMF. Enthusiasts of hyper-globalization also claimed that it benefited poor countries by increasing export opportunities, but as the success of East Asia shows, there is more than one way to boost exports -- and many poorer countries suffered under the terms of the global neoliberal regime.

Nor was the damage confined to the developing world. As the work of Harvard economist Dani Rodrik has demonstrated, democracy requires a polity. For better or for worse, the polity and democratic citizenship are national. By enhancing the global market at the expense of the democratic state, the current brand of hyper-globalization deliberately weakens the capacity of states to regulate markets, and weakens democracy itself.

When Do Markets Work?

The failure of neoliberalism as economic and social policy does not mean that markets never work. A command economy is even more utopian and perverse than a neoliberal one. The practical quest is for an efficient and equitable middle ground.

The neoliberal story of how the economy operates assumes a largely frictionless marketplace, where prices are set by supply and demand, and the price mechanism allocates resources to their optimal use in the economy as a whole. For this discipline to work as advertised, however, there can be no market power, competition must be plentiful, sellers and buyers must have roughly equal information, and there can be no significant externalities. Much of the 20th century was practical proof that these conditions did not describe a good part of the actual economy. And if markets priced things wrong, the market system did not aggregate to an efficient equilibrium, and depressions could become self-deepening. As Keynes demonstrated, only a massive jolt of government spending could restart the engines, even if market pricing was partly violated in the process.

Nonetheless, in many sectors of the economy, the process of buying and selling is close enough to the textbook conditions of perfect competition that the price system works tolerably well. Supermarkets, for instance, deliver roughly accurate prices because of the consumer's freedom and knowledge to shop around. Likewise much of retailing. However, when we get into major realms of the economy with positive or negative externalities, such as education and health, markets are not sufficient. And in other major realms, such as pharmaceuticals, where corporations use their political power to rig the terms of patents, the market doesn't produce a cure.

The basic argument of neoliberalism can fit on a bumper sticker. Markets work; governments don't . If you want to embellish that story, there are two corollaries: Markets embody human freedom. And with markets, people basically get what they deserve; to alter market outcomes is to spoil the poor and punish the productive. That conclusion logically flows from the premise that markets are efficient. Milton Friedman became rich, famous, and influential by teasing out the several implications of these simple premises.

It is much harder to articulate the case for a mixed economy than the case for free markets, precisely because the mixed economy is mixed. The rebuttal takes several paragraphs. The more complex story holds that markets are substantially efficient in some realms but far from efficient in others, because of positive and negative externalities, the tendency of financial markets to create cycles of boom and bust, the intersection of self-interest and corruption, the asymmetry of information between company and consumer, the asymmetry of power between corporation and employee, the power of the powerful to rig the rules, and the fact that there are realms of human life (the right to vote, human liberty, security of one's person) that should not be marketized.

And if markets are not perfectly efficient, then distributive questions are partly political choices. Some societies pay pre-K teachers the minimum wage as glorified babysitters. Others educate and compensate them as professionals. There is no "correct" market-derived wage, because pre-kindergarten is a social good and the issue of how to train and compensate teachers is a social choice, not a market choice. The same is true of the other human services, including medicine. Nor is there a theoretically correct set of rules for patents, trademarks, and copyrights. These are politically derived, either balancing the interests of innovation with those of diffusion -- or being politically captured by incumbent industries.

Governments can in principle improve on market outcomes via regulation, but that fact is complicated by the risk of regulatory capture. So another issue that arises is market failure versus polity failure, which brings us back to the urgency of strong democracy and effective government.

After Neoliberalism

The political reversal of neoliberalism can only come through practical politics and policies that demonstrate how government often can serve citizens more equitably and efficiently than markets. Revision of theory will take care of itself. There is no shortage of dissenting theorists and empirical policy researchers whose scholarly work has been vindicated by events. What they need is not more theory but more influence, both in the academy and in the corridors of power. They are available to advise a new progressive administration, if that administration can get elected and if it refrains from hiring neoliberal advisers.

There are also some relatively new areas that invite policy innovation. These include regulation of privacy rights versus entrepreneurial liberties in the digital realm; how to think of the internet as a common carrier; how to update competition and antitrust policy as platform monopolies exert new forms of market power; how to modernize labor-market policy in the era of the gig economy; and the role of deeper income supplements as machines replace human workers.

The failed neoliberal experiment also makes the case not just for better-regulated capitalism but for direct public alternatives as well. Banking, done properly, especially the provision of mortgage finance, is close to a public utility. Much of it could be public. A great deal of research is done more honestly and more cost-effectively in public, peer-reviewed institutions such as the NIHthan by a substantially corrupt private pharmaceutical industry. Social housing often is more cost-effective than so-called public-private partnerships. Public power is more efficient to generate, less prone to monopolistic price-gouging, and friendlier to the needed green transition than private power. The public option in health care is far more efficient than the current crazy quilt in which each layer of complexity adds opacity and cost. Public provision does require public oversight, but that is more straightforward and transparent than the byzantine dance of regulation and counter-regulation.

The two other benefits of direct public provision are that the public gets direct evidence of government delivering something of value, and that the countervailing power of democracy to harness markets is enhanced. A mixed economy depends above all on a strong democracy -- one even stronger than the democracy that succumbed to the corrupting influence of economic elites and their neoliberal intellectual allies beginning half a century ago. The antidote to the resurrected neoliberal fable is the resurrection of democracy -- strong enough to tame the market in a way that tames it for keeps.

Arthur Littwin , August 4, 2019 at 7:36 am

Excellent article and very much appreciated so I can share with confused Liberal friends (mostly older) who think that they are now, somehow, Neoliberal. As far as market failure is concerned: I think Boeing is an incredible case in point. When one of the nation's flagship enterprises captures regulatory processes so completely that it produces a product that cannot accomplish its one aim: to fly. Btw: I am seeing a lot of use of the "populist" to describe what might be more correctly described as nativist, xenophobic, anti-democratic, authoritarian, or even outright fascist leaders. Keep the language clear and insist on precise definitions.

Ian Perkins , August 4, 2019 at 10:16 am

Excellent article, I agree. As regards clear language and definitions, I much prefer Michael Hudson's insistence that, to the liberal economists, free markets were markets free from rent seeking, while to the neoliberals free markets are free from government regulation.

"As governments were democratized, especially in the United States, liberals came to endorse a policy of active public welfare spending and hence government intervention, especially on behalf of the poor and disadvantaged. neoliberalism sought to restore the centralized aristocratic and oligarchic rentier control of domestic politics."

http://michael-hudson.com/2014/01/l-is-for-land/ – "Liberal"

bwilli123 , August 4, 2019 at 7:44 am

"The economic collapse of 2008 was the result of the deregulation of finance. It cost the real U.S. economy upwards of $15 trillion (and vastly more globally), depending on how you count, far more than any conceivable efficiency gain that might be credited to financial innovation ."
That High Priest of neo-Liberalism Alan Greenspan once said, "The only thing useful banks have invented in 20 years is the ATM "

vern lyon , August 4, 2019 at 8:33 am

Sorry, the ATM quote was Paul Volker not Greenspan.

paul , August 4, 2019 at 8:23 am

In my worthless opinion: The private sector is great for what you do not need

The public sector(direction not implementation) is the only way to provide what we all need. 2.5 up maslow's pyramid would suit many.

If you are short of links tomorrow: Craig Murray would be worth a look

Divadab , August 4, 2019 at 8:23 am

Hard to see how the federal government can be gotten back from the cartels at this point- the whole thing is so corrupt. And the "socialism is bad" mantra has captured a lot of easily led brains.

In a political system where the reputedly "labor" party would rather lose with their bribe-taking warmongering Goldwater girl than win with a people's advocate, Houston we have a problem.

As with anthropogenic climate change, the cause is systemic- the political system is based on money control and the economic system is based on unsustainable energy use. Absent a crash, crisis, systematic chaos and destruction I don't see much changing other than at the margins- the corruption is too entrenched.

Watt4Bob , August 4, 2019 at 9:28 am

We were warned about the situation you describe.

The following is a portion of an op-ed piece that appeared in the New York Times On April 4, 1944 . It was written by Henry Wallace, FDR's vice president;

If we define an American fascist as one who in case of conflict puts money and power ahead of human beings, then there are undoubtedly several million fascists in the United States. There are probably several hundred thousand if we narrow the definition to include only those who in their search for money and power are ruthless and deceitful. Most American fascists are enthusiastically supporting the war effort. They are doing this even in those cases where they hope to have profitable connections with German chemical firms after the war ends. They are patriotic in time of war because it is to their interest to be so, but in time of peace they follow power and the dollar wherever they may lead.

American fascism will not be really dangerous until there is a purposeful coalition among the cartelists, the deliberate poisoners of public information, and those who stand for the K.K.K. type of demagoguery.

The European brand of fascism will probably present its most serious postwar threat to us via Latin America. The effect of the war has been to raise the cost of living in most Latin American countries much faster than the wages of labor. The fascists in most Latin American countries tell the people that the reason their wages will not buy as much in the way of goods is because of Yankee imperialism. The fascists in Latin America learn to speak and act like natives. Our chemical and other manufacturing concerns are all too often ready to let the Germans have Latin American markets, provided the American companies can work out an arrangement which will enable them to charge high prices to the consumer inside the United States. Following this war, technology will have reached such a point that it will be possible for Germans, using South America as a base, to cause us much more difficulty in World War III than they did in World War II. The military and landowning cliques in many South American countries will find it attractive financially to work with German fascist concerns as well as expedient from the standpoint of temporary power politics.

Fascism is a worldwide disease. Its greatest threat to the United States will come after the war, either via Latin America or within the United States itself.

The full text is quite useful in understanding that there is no question as to how and why we find ourselves in the present predicament, it is the logical outcome of a process that was well understood during FDR's tenure.

That understanding has since been deliberately eradicated by the powerful interests that control our media.

John Zelnicker , August 4, 2019 at 12:04 pm

@Watt4Bob
August 4, 2019 at 9:28 am
-- -- -

Thank you for posting this excerpt.

Very enlightening.

There was a lot of wisdom put forth during and shortly after WWII in both politics (see above) and economics.

For example, there was a Treasury official, whose name I can't remember right now, who understood that the Federal government has no real need to collect taxes. And, Keynesianism prevailed until Milton Friedman and the Chicago School came along and turned everything upside down with Monetarism.

mle in detroit , August 4, 2019 at 12:54 pm

Wow, does Wallace's second paragraph describe today or what?

Ian Perkins , August 4, 2019 at 2:52 pm

My thoughts exactly.

Amfortas the hippie , August 4, 2019 at 10:00 am

"absent a crash " I reckon "unsustainable" is an important word to remember. None of it is sustainable all those spinning plates and balls in the air .and the grasshopper god demands that they keep adding more and more plates and balls.

All based on a bunch of purposefully unexamined assumptions.

... ... ...

Ian Perkins , August 4, 2019 at 10:34 am

Or Edward Abbey: "Growth for the sake of growth is the ideology of the cancer cell."

I did an A-level (UK exam for 18 year olds) in economics years ago, and despite passing with an A, I not only couldn't understand this underlying assumption of continued exponential growth forever, I also couldn't understand why anyone couldn't understand its obvious absurdity.
Sustainability was a bit of a new word in those days, but when I discovered it, it summed up my problems with (over-) developed economies.

Carolinian , August 4, 2019 at 9:32 am

To add to the confusion, a different and partly overlapping usage was advanced in the 1970s by the group around the Washington Monthly magazine. They used "neoliberal" to mean a new, less statist form of American liberalism. Around the same time, the term neoconservative was used as a self-description by former liberals who embraced conservatism, on cultural, racial, economic, and foreign-policy grounds. Neoconservatives were neoliberals in economics.

This commenter has been scolded in the past for invoking Charlie Peters and the Washington Monthly rather than Friedman, Hayek etc. But what Peters' highly influential magazine (and the transformed New Republic that followed) did was to bring the Democrats into the neoliberal fold and that may be the real reason it's a beast that can't be killed.

Neoliberalism gave liberals an excuse to sell out in the name of "fresh thinking." Meanwhile the vast working class had become discredited Archie Bunkers in the eyes of the intellectuals after Vietnam and the Civil Rights struggles.

It's possible that what really changed the country was the rise of that middle class that Kuttner now mourns. Suggesting that it was all the result of a rightwing plan is too easy although that was certainly part of it.

David , August 4, 2019 at 10:06 am

I'd add two other consequences of neoliberalism. One is the increasing alienation of citizens from the mechanism for provision of the basic necessities of life. Before the 1980s, for example, water, gas, electricity etc. were provided by publicly-owned utilities with local offices, recognisable local and national structures, and responsible to an elected Minister.

If you had a serious problem, then in the final analysis you could write a letter to your MP, who would take it up with the Minister. Now, you are no longer a citizen but a consumer, and your utilities are provided by some weird private sector thing, owned by another company, owned by some third company, frequently based abroad, and with its customer services outsourced to yet another company which could be anywhere in the world all. All this involves significant transaction costs for individuals, who are expected to conduct sophisticated cost-effectiveness comparisons between providers, when in fact they just want to turn on the tap and have water come out.

The other is that government (and hence the citizen) loses any capacity for strategic planning. Most nationalized industries in Britain were either created because the private sector wasn't interested, or picked up when the private sector went bankrupt (the railways for example). But without ownership, the capacity to decide what you want and get it is much reduced. You can see that with the example of the Minitel – a proto-internet system given away free by the French government through the state-owned France Telecom in the early 1980s, and years ahead of anything else. You literally couldn't do anything similar now.

John Merryman. , August 4, 2019 at 10:35 am

Taking Michael Hudson's work into account, there is a much deeper and older dynamic at work, of which neoliberalism is just the latest itineration.
A possible explanation goes to the nature of money.

As the accounting device that enables mass societies to function, it amounts to a contract between the individual and the community, with one side an asset and the other a debt. Yet as we experience it as quantified hope, we try to save and store it. Consequently, in order to store the asset, similar amounts of debt have to be created.

Which results in a centripedial effect, as positive feedback draws the asset side to the center of the social construct, while negative feedback pushes the debt to the edges. It could be argued this dynamic is the basis of economic hierarchy, not just a consequence.

Yet money and finance function as the economic blood and arteries, circulating value around the entire community, so the effect of this dynamic is like the heart telling the hands and feet they don't need so much blood and should work harder for what they do get.

Basically we have to accept that while money is an effective medium of exchange, it is not a productive store of value. We wouldn't confuse blood with fat, or roads with parking lots, so it should be possible to learn to store value in tangibles, like the strong communities and healthy environments that will give us the safety and security we presumably save money for.

As a medium, we own money like we own the section of road we are using, or the fluids passing through our bodies. Let the neoliberals chew on that.

tegnost , August 4, 2019 at 11:39 am

Yet money and finance function as the economic blood and arteries, circulating value around the entire community, so the effect of this dynamic is like the heart telling the hands and feet they don't need so much blood and should work harder for what they do get.

nice image of a not so nice dynamic

John Merryman. , August 4, 2019 at 12:34 pm

Thanks. Political persuasion is about keeping it simple. How about; Government was once private. It was called monarchy. Do we want to go back there, or do we need to better understand the balance between public and private? Even houses have spaces that are public and spaces that are private.

pjay , August 4, 2019 at 10:44 am

This is, indeed, an excellent historical overview, evoking some of Kuttner's best writing over the decades. I would recommend it with no hesitation.

On the other hand, Kuttner's American Prospect has also provided cover for some damaging faux-progressive enablers of neoliberalism over those decades (IMHO). A puzzlement.

P S BAKER , August 4, 2019 at 10:45 am

An excellent exegesis – this is going to be my go-to summary from now on. Many thanks.

Sal , August 4, 2019 at 11:20 am

I must remind everyone that Bob Kuttner is no longer what he used to be. Bob Kuttner was against progressive Dem candidates like Bernie in 2016, and was in bed with THE neoliberal candidate ..With the passage of time, Kuttner has evolved into a partisan for the sake of partisanship, instead of being principled.

tegnost , August 4, 2019 at 12:15 pm

after reading your comment I went through the post again and found these suspicious points

"The failure of neoliberalism as economic and social policy does not mean that markets never work. A command economy is even more utopian and perverse than a neoliberal one. The practical quest is for an efficient and equitable middle ground. "

so, get in front of the riot and call it a parade? Maybe a little bit. Also

"Nonetheless, in many sectors of the economy, the process of buying and selling is close enough to the textbook conditions of perfect competition that the price system works tolerably well. Supermarkets, for instance, deliver roughly accurate prices because of the consumer's freedom and knowledge to shop around. Likewise much of retailing . However, when we get into major realms of the economy with positive or negative externalities, such as education and health, markets are not sufficient. And in other major realms, such as pharmaceuticals, where corporations use their political power to rig the terms of patents, the market doesn't produce a cure."

Probably not working so well for the employees or the farm workers who get food on the shelf
I guess maybe not practical to change that dynamic? That said, as history the post is as good as anything else I've seen, and reads well, but maybe does need a grain of salt to make it more palatable.

Camelotkidd , August 4, 2019 at 11:35 am

"Neoliberalism's premise is that free markets can regulate themselves; that government is inherently incompetent, captive to special interests, and an intrusion on the efficiency of the market; that in distributive terms, market outcomes are basically deserved; and that redistribution creates perverse incentives by punishing the economy's winners and rewarding its losers. So government should get out of the market's way."

In an otherwise good article the author makes a fundamental error. As Phillip Mirowski patiently explains in Never Let a Serious Crisis Go to Waste, neoliberalism is not laissez faire. Neoliberal desire a strong government to implement their market based nirvana, as long as they control government.

Hayek's Heelbiter , August 4, 2019 at 11:43 am

The best summation on the failure of neoliberalism I've ever read. Will share widely Still nipping. Maybe one day I'll be able to take a real bite!

shinola , August 4, 2019 at 1:51 pm

"[ .] was used to justify political conservatism, imperialism, and racism and to discourage intervention and reform."

That missing first word could easily be neoliberalism; however, that sentence was actually pulled from a definition of Social Darwinism.

[Aug 04, 2019] The Last Western Empire by The Saker

The entire point of the Ukraine conflict was to drive a wedge between natural allies in Europe: Russia and Germany. Together they would form the most powerful economic block on earth. This is USA greatest fear. Luckily for USA, they succeeded in blocking this alliance...
Aug 04, 2019 | www.unz.com

It all began during what I think of as the " Kristallnacht of international law," 30 August September 1995, when the Empire attacked the Bosnian-Serbs in a direct and total violation of all the most fundamental principles of international law. Then there was 9/11, which gave the Neocons the "right" (or so they claimed) to threaten, attack, bomb, kill, maim, kidnap, assassinate, torture, blackmail and otherwise mistreat any person, group or nation on the planet simply because " we are the indispensable nation " and " you either are with the terrorists or with us ". During these same years, we saw Europe become a third-rate US colony incapable of defending even fundamental European geopolitical interests while the US became a third-rate colony of Israel equally incapable of defending even fundamental US geopolitical interests. Most interestingly looking back, while the US and the EU were collapsing under the weight of their own mistakes, Russia and China were clearly on the ascend; Russia mostly in military terms (see here and here ) and China mostly economically. Most crucially, Russia and China gradually agreed to become symbionts which, I would argue, is even stronger and more meaningful than if these two countries were united by some kind of formal alliance: alliances can be broken (especially when a western nation is involved), but symbiotic relationships usually last forever (well, nothing lasts forever, of course, but when a lifespan is measured in decades, it is the functional equivalent of "forever", at least in geostrategic analytical terms). The Chinese have now developed an official, special, and unique expression to characterize that relationship with Russia. They speak of a "Strategic, comprehensive partnership of coordination for the new era."

... ... ...

Empires cannot only trade. Trade alone is simply not enough to remain a viable empire. Empires also need military force, and not just any military force, but the kind of military force which makes resistance futile. The truth is that NO modern country has anywhere near the capabilities needed to replace the US in the role of World Hegemon: not even uniting the Russian and Chinese militaries would achieve that result since these two countries do not have:

1) a worldwide network of bases (which the US have, between 700-1000 depending on how you count)

2) a major strategic air-lift and sea-lift power projection capability

3) a network of so-called "allies" (colonial puppets, really) which will assist in any deployment of military force

...

neither China nor Russia have any interests in policing the planet or imposing some regime change on other countries. All they really want is to be safe from the US, that's it.

This new reality is particularly visible in the Middle-East where countries like the United States, Israel or Saudi Arabia (this is the so-called "Axis of Kindness") are currently only capable of deploying a military capable of massacring civilians or destroy the infrastructure of a country, but which cannot be used effectively against the two real regional powers with a modern military: Iran and Turkey.

But the most revealing litmus test was the US attempt to bully Venezuela back into submission. For all the fire and brimstone threats coming out of DC, the entire "Bolton plan(s?)" for Venezuela has/have resulted in a truly embarrassing failure: if the Sole "Hyperpower" on the planet cannot even overpower a tremendously weakened country right in its backyard, a country undergoing a major crisis, then indeed the US military should stick to the invasion of small countries like Monaco, Micronesia or maybe the Vatican (assuming the Swiss guard will not want to take a shot at the armed reps of the "indispensable nation"). The fact is that an increasing number of medium-sized "average" countries are now gradually acquiring the means to resist a US attack.

So if the writing is on the wall for the AngloZionist Empire, and if no country can replace the US as imperial world hegemon, what does that mean?

It means the following: 1000 years of European imperialism is coming to an end !

This time around, neither Spain nor the UK nor Austria will take the place of the US and try to become a world hegemon. In fact, there is not a single European nation which has a military even remotely capable of engaging the kind of "colony pacification" operations needed to keep your colonies in a suitable state of despair and terror. The French had their very last hurray in Algeria, the UK in the Falklands, Spain can't even get Gibraltar back, and Holland has no real navy worth speaking about. As for central European countries, they are too busy brown-nosing the current empire to even think of becoming an empire (well, except Poland, of course, which dreams of some kind of Polish Empire between the Baltic and the Black Sea; let them, they have been dreaming about it for centuries, and they will still dream about it for many centuries to come ).

Now compare European militaries with the kind of armed forces you can find in Latin America or Asia? There is such a knee-jerk assumption of superiority in most Anglos that they completely fail to realize that medium and even small-sized countries can develop militaries sufficient enough to make an outright US invasion impossible or, at least, any occupation prohibitively expensive in terms of human lives and money (see here , here and here ). This new reality also makes the typical US missile/airstrike campaign pretty useless: they will destroy a lot of buildings and bridges, they will turn the local TV stations ("propaganda outlets" in imperial terminology) into giant piles of smoking rubble and dead bodies, and they kill plenty of innocents, but that won't result in any kind of regime change. The striking fact is that if we accept that warfare is the continuation of politics by other means, then we also have to admit, that under that definition, the US armed forces are totally useless since they cannot help the US achieve any meaningful political goals.

The truth is that in military and economic terms, the "West" has already lost. The fact that those who understand don't talk, and that those who talk about this (denying it, of course) have no understanding of what is taking place, makes no difference at all.

...Indeed, if the Neocons don't blow up the entire planet in a nuclear holocaust, the US and Europe will survive, but only after a painful transition period which could last for a decade or more. One of the factors which will immensely complicate the transition from Empire to "regular" country will be the profound and deep influence 1000 years of imperialism have had on the western cultures, especially in the completely megalomaniac United States ( Professor John Marciano's "Empire as a way of life" lecture series addresses this topic superbly – I highly recommend them!): One thousand years of brainwashing are not so easily overcome, especially on the subconscious (assumptions) level.


peterAUS , says: August 1, 2019 at 3:55 am GMT

.no less pathological a revival of racist/racialist theories .

. the current megalomania ("We are the White Race! We built Athens and Rome! We are Evropa!!!") .

. the current waves of immigrants are nothing more than a 1000 years of really bad karma returning to where it came from initially..

Good to know.

The scalpel , says: Website August 1, 2019 at 4:19 am GMT

what does the collapse of the AngloZionist Empire really mean?

It means civil war, very likely nuclear civil war

Biff , says: August 1, 2019 at 5:08 am GMT
Well, the number one factor keeping empire in a hegemonic stance is the hegemonic U.S. dollar. The empire isn't going anywhere as long as the dollar remains as the worlds reserve currency. Most of planetary trade goes through Brussels and Wall Street denoted in dollars. Most of the credit cards carried and used around the world are SWIFT creations.

How and where this will change will be more telling than where the military loses its last battle.

Tom67 , says: August 1, 2019 at 5:39 am GMT
A usual tour de force by the Saker. But one can see things also very differently.

– Western Imperialism: the Holy Roman Empire never had any colonies. Nor did any of the Eastern European states. Nor did the Italians states save for the farcical attempts of Mussolini

– Whas the Turkish empire also due to the Frankish imperialistic popish impulse?

– What the Saker is talking about here are basically GB, France and Holland.

– What about the Russian Empire? What was it but a colonial enterprise? And will rump Russia endure? I have my doubts. Putin ended the Chechen war by giving Chechnya de facto if not de jure self governance. Right now things are okey dokey as Russia is bribing Kadyrov and Kadyrov and Putin having a special personal relationship. But what if circumstances change? Putin not being there any more and some new Russian government tries to enforce its writ in Chechnya? On top there is the birthrate in the Caucasus which is two times the Russian birthrate. Will all those different nationalities still feel bound to Russia in the future? And will Russians be willing to subsidise the Caucasus for ever?

– The "symbiosis" between Russia and China is laughable. As soon as the Anglo-Zionist empire really collapses the differences between Russia and China will come to the fore.

To get China´s help after the Ukraine crisis Russia had to give China a free hand in Mongolia. Before Russia had always seen to it that Mongolia didn´t get too dependent on China. Half of the foreign exchange of Mongolia was earned by the Russian-Mongolian copper mine of Erdenet. Three years ago Russia sold its share in Erdenet. By now Erdenet has been pledged by Mongolias venal politicians as collateral for Chinese loans.

Also China has certainly never forgot that the Russian far East was part of the Qing empire until the 1850s.Tthis will be brought up again as soon as Russia is sufficiently weak.

Russia was forced into the alliance with China by the West. The only industrial sphere where Russia does indeed have world class expertise is in armaments. After Ukraine Russia was forced to share its technology with China. And China will definately put this new knowledge to good use and in the not so far future overtake Russia in this particular field of expertise. Then watch what will happen.

– China not interested in old fashioned imperial politics. That is laughable as well. China has a base in Ceylon now that they got as collateral for a loan that Ceylon couldn´t repay. China is laying claim to the whole South China sea and even parts of the 200 mile zones of countries like the Philipines, Indonesia and Vietnam. To back up these claims with military muscle they build navy bases all over the Spratley islands

– China is getting more and more carbon hydrates through pipelines from Central Asia. At the same time it is mass imprisoning its Turkic population (Uyghus, Kazakhs and Kirgiz). The way the Chinese treat those people is exactly racist in the way the Saker has described the European relationship to the rest of the world. If you are a businessman in any one of those countries you will not be allowed to interact with people of the same faith, culture and almost the same language who live just across the border in Xinjiang.

The Chinese government has seen to the fact that any member of those minorities lives in mortal fear of any contact with foreigners. Any business must now be conducted only with ethnic Chinese. And as as a Kirghiz or Kazakh national you are not distuingishable from a Kirgiz or Kazakh from Xinjiang you will suffer the same indignities as them when you travel to Xinjiang.

As venal and corrupt as the elites of the "Stans" might be: even they perceive Chinese actions in neighbouring Xinjiang as so grossly offensive that they hardly hide their disdain anymore. In fact I talked to a journalist last week who was present at the latest SCO gathering in Bishkek. She was astonished at the level of Sinophobia she accountered.

So on the one hand China is in the process of acquiring more and more of the ressources of the Stans. But on the other hand it is worsening its relationship with the peoples of these countries.

The Stans are still ruled by the same Soviet nomenklatura. There has been no real change. The question is how stable this arrangement is. It definately fits the requirement of the Chinese but the longer this lasts the more the elites of the Stans are coming between China and their own population.

China is well aware of this. To protect its investment it might have to use force in the future. And that is what I expect to happen in case one of those pipelines is interrupted. Not so different from what the West is doing in the Middle East. All that talk of the Saker about "good" and "bad" civilisations and promised land once the Anglo-Zionist ascendancy is over is just that: empty words.

In reality Nitzsche is still right: States are the coldest of cold monsters.

hunor , says: August 1, 2019 at 5:47 am GMT
It is incredibly , wickedly absurd and naïve to even think that , what you call an empire
will go down without a world shattering fight.
It is mindless ignorance not to notice the handwriting on the wall.
This entity you call empire , has been preparing for this event for centuries.
They are telling it in our face directly , " new world order", " full spectrum domination"
They have what nobody else has , a proactive plan, a global network of military bases, and
the scariest part is the fact , that they have no moral barriers to say that, it is not going to be a fair fight. No hold barred ! No laws ! No rules of engagement! The end justifies the means !
On the end they will not win in fact nobody will .
But the old must die for the new to be .
Our desire to become brought us to this point , it was an exiting ride , but the new humans
will have a " climate change " of consciousness .
That is not a silly hope , that is logic based clearly on design.
anon [102] Disclaimer , says: August 1, 2019 at 9:13 am GMT

Both US Americans and Europeans will, for the very first time in their history, have to behave like civilized people, which means that their traditional "model of development" (ransacking the entire planet and robbing everybody blind) will have to be replaced by one in which these US Americans and Europeans will have to work like everybody else to accumulate riches.

Most Americans don't get to collect welfare. Most Americans have to get jobs and pay for stuff. Most Americans who work do NOT accumulate riches – they go broke. Probably the elite .01% – guys like Jeff Bezos and Jeff Epstein and Bernie Madoff – can get rich and accumulate riches. That is not "AngloZionist." It's just Zionist.

[Aug 03, 2019] The US elite realised that globalization no longer serves the US as it leads to the rise of developing nations. Thus they no longer support it and even sabotage it.

Notable quotes:
"... US President Trump does not do that in order to dismantle the dollar or US hegemony because of so called isolationism, as some may think. Trump does that in order to save US hegemony, implementing policies, in my opinion, devised by the US military/intelligence/science community. They now want to hamper globalisation and create fortress US, in order to bring back manufacturing and save as much as possible of the US Empire. Chaos and lack of cooperation in the world benefit the US. They now realise globalisation no longer serves the US as it leads to the rise of developing nations. Thus they no longer support it and even sabotage it." ..."
"... Trump and his trade negotiators continue to insist on China agreeing to an unequal trade treaty. ..."
"... IMO, China can continue to refuse and stand up for its principles, while the world looks on and nods its head in agreement with China as revealed by the increasing desire of nations to become a BRI partner. ..."
"... It should be noted that Trump's approach while differing from the one pushed by Obama/Kerry/Clinton the goal is the same since the Empire needs the infusion of loot from China to keep its financial dollarized Ponzi Scheme functioning. ..."
"... Russia's a target too, but most of its available loot was already grabbed during the 1990s. ..."
"... I keep going back to believing that multilateralism is a code word for no longer allowing empire global private finance hegemony and fiat money. ..."
"... The continuing practice of Neoliberalism by the Outlaw US Empire and its associated corporations and vassal nations checkmates what you think Trump's trying to accomplish. Hudson has explained it all very well in a series of recent papers and interviews: Neoliberalism is all about growing Financial Capitalism and using it to exert control/hegemony on all aspects of political-economy. ..."
"... Trump hasn't proposed any new policy to accomplish his MAGA pledge other than engaging in economic warfare with most other nations. His is a Unilateral Pirate Ship out to plunder all and sundry, including those that elected him. ..."
Aug 03, 2019 | www.moonofalabama.org

Passer by | Aug 2 2019 23:39 utc | 30

I will mention this again, to see what people here think, as they are intelligent people. I sent mails to Russian and Chinese authorities about this.

"I will provide you with possible reasons behind the current trade wars and rejection of globalisation by the US. In short, they think that they will save their hegemony, to a certain degree, that way.

There are long term GDP Growth and Socioeconomic Scenarios developed by the Intergovernmental Panel on Climate Change, the OECD, and the world scientific community. They are generally used to measure the impact of Climate change on the World. In order to measure it, Socioeconomic Scenarios were developed, as the level of economic growth in the world is very important for determining the impact of Climate Change in the future. High growth levels will obviously affect Climate Change, so these GDP estimates are important. The scenarios are with time horizon 2100.

For more on this you can check these studies here, some of the many dealing with this topic. They describe the scenarios for the world.

https://www.sciencedirect.com/science/article/pii/S0959378016300681#sec0025

https://www.sciencedirect.com/science/article/abs/pii/S0959378015000837

There are 5 main scenarios, or "Shared Socioeconomic Pathways". All of them describe different worlds.

See SSP 3. A world of rivalry, trade wars, trade barriers, lack of global cooperation, and fragmentation, will lead to lower level of growth in the developing world, and thus a slow catch up process. Multipolarity in such a world is weak as the developing world is hampered.

In other words, a world of cooperation between countries will lead to higher economic growth in the developing world, faster catch up process, and thus stronger multipolarity.

Low cooperation, fragmented world, high conflict scenarios consistently lead to low growth in the developing world and thus to the US and the West retaining some of its positions - a world with overall bad economy and low level of multipolarity.

Basically, globalisation is key. The developing world (ex West) was growing slowly before globalisation (before 1990). Globalisation means sharing of technology and knowledge, and companies investing in poorer countries. Outsourcing of western manufacturing. Etc. After globalisation started in 1990, the developing world is growing very well. It is globalisation that is weakening the relative power of the West and empowering the developing world. The US now needs to kill globalisation if it is to stop its relative decline.

So what do we see: exactly attempts to create the SSP 3 scenario. Trade wars, sanctions, attacks on multilateral institutions - the WTO, on international law, on the Paris Climate Change Agreement (which if accepted would put constraints on the US economy), on the UN, bullying of Europe, lack of care for european energy needs, support for Brexit (which weakens Europe), crack down on chinese students and scientists in the US, crack down on chinese access to western science data, demands to remove the perks for poor countries in the WTO, etc. This is hitting economic growth in the whole world and the global economy currently is not well. By destroying the world economy, the US benefits as it hampers the rise of the developing nations.

US President Trump does not do that in order to dismantle the dollar or US hegemony because of so called isolationism, as some may think. Trump does that in order to save US hegemony, implementing policies, in my opinion, devised by the US military/intelligence/science community. They now want to hamper globalisation and create fortress US, in order to bring back manufacturing and save as much as possible of the US Empire. Chaos and lack of cooperation in the world benefit the US. They now realise globalisation no longer serves the US as it leads to the rise of developing nations. Thus they no longer support it and even sabotage it."

karlof1 , Aug 2 2019 23:55 utc | 31

psychohistorian @11--

You ask, "The concept of multilateralism is not completely clear to me in relation to the global public/private finance issue and I am not of faith but of questions...."

Wikileaks definition :

"In international relations, multilateralism refers to an alliance of multiple countries pursuing a common goal."

The key point for the Chinese during negotiations as I understand them via their published White Paper on the subject is development and the international rules put in place at WTO for nations placed into the Developing category, which get some preferential treatment to help their economies mature. As China often reminds the global public--and officials of the Outlaw US Empire--both the BRI and EAEU projects are about developing the economies of developing economies, that the process is designed to be a Win-Win for all the developing economies involved. This of course differs vastly from what's known as the Washington Consensus, where all developing economies kowtow to the Outlaw US Empire's diktat via the World Bank and IMF and thus become enslaved by dollar dependency/debt. Much is written about the true nature of the Washington Consensus, Perkins Confessions of an Economic Hit Man and Klein's Disaster Capitalism being two of the more recent and devastating, and many nations are able to attest to the Zero-sum results. The result is very few nations are willing to subject their economies to the pillaging via Washington Consensus institutions, which Hudson just recently reviewed.

The Empire is desperate and is looking for ways to keep its Super Imperialism intact and thus continue its policy aimed at Full Spectrum Dominance. But the Empire's abuse of the dollar-centric institutions of international commerce has only served to alienate its users who are openly and actively seeking to form parallel institutions under genuine multilateral control. However as Hudson illustrates, Trump doesn't know what he's doing regarding his trade and international monetary policies. Today's AP above the fold headline in Eugene's The Register Guard screamed "Trump threatens 10% tariffs;" but unusually for such stories, it explains that the 10% is essentially a tax on US consumers, not on Chinese companies, which provides a message opposite of the one Trump wants to impart--that he's being tough on the Chinese when the opposite's true. China will continue to resist the attempts to allow the international financial sharks to swim in Chinese waters as China is well aware of what they'll attempt to accomplish--and it's far easier to keep them out than to get them out once allowed in, although China's anti-corruption laws ought to scare the hell out of the CEOs of those corps.

The Empire wants to continue its longstanding Open Door policy in the realm of target nations opening their economies to the full force of Imperial-based corps so they can use their financial might to wrestle the market from domestic players and institute their Oligopoly. China already experienced the initial Open Door (which was aimed at getting Uncle Sam's share of China during the Unequal Treaties period 115 years ago) and will not allow that to recur. China invokes its right under WTO rules for developing economies to protect their financial services sector from predation; the Empire argues China is beyond a developing economy and must drop its shields. We've read what Hudson advised the Chinese to do--resist and develop a publicly-based yuan-centered financial system that highly taxes privatized rent-seekers while keeping and enhancing state-provided insurance--health, home, auto, life, etc--while keeping restrictions on foreign land ownership since it's jot allowed to purchase similar assets within the domestic US market.

The Outlaw US Empire insists that China give so it can take. Understandably, China says no; what we allow you to do, you should allow us to do. Trump and his trade negotiators continue to insist on China agreeing to an unequal trade treaty. Obviously, the latest proposal was merely a repetition of what came before and was rejected as soon as the meeting got underway, so it ended as quickly as it started. IMO, China can continue to refuse and stand up for its principles, while the world looks on and nods its head in agreement with China as revealed by the increasing desire of nations to become a BRI partner.

It should be noted that Trump's approach while differing from the one pushed by Obama/Kerry/Clinton the goal is the same since the Empire needs the infusion of loot from China to keep its financial dollarized Ponzi Scheme functioning.

Russia's a target too, but most of its available loot was already grabbed during the 1990s. D-Party Establishment candidates have yet to let it be known they'll try to do what Trump's failing to do, which of course has nothing to do with aiding the US consumer and everything to do with bolstering Wall Street's Ponzi Scheme.

Passer by | Aug 3 2019 0:06 utc | 32

karlof1 , Aug 2 2019 23:55 utc | 31

Good comment, karlof1 , i think that the attack against China is attack against the heart of multipolarity. It will be good if b could post about the escalation of the trade war. This is important. The US clearly intends to resist multipoarity, and tries to stop it.

karlof1 , Aug 3 2019 0:19 utc | 34
@ karlof1 with the response...thanks

If I would have had my act together last night I would have posted another link fro Xinhuanet (can't find now) about how China wants to retain developing nation status and provides as data that the (I think) per capita GDP had gone down....gotten worse in relation to the US per capita GDP.

I keep going back to believing that multilateralism is a code word for no longer allowing empire global private finance hegemony and fiat money.

Passer by @30--

The continuing practice of Neoliberalism by the Outlaw US Empire and its associated corporations and vassal nations checkmates what you think Trump's trying to accomplish. Hudson has explained it all very well in a series of recent papers and interviews: Neoliberalism is all about growing Financial Capitalism and using it to exert control/hegemony on all aspects of political-economy.

Thus, there's no need to sponsor the reindustrialization that would lead to MAGA. Indeed, Trump hasn't proposed any new policy to accomplish his MAGA pledge other than engaging in economic warfare with most other nations. His is a Unilateral Pirate Ship out to plunder all and sundry, including those that elected him.

In your outline, it's very easy to see why BRI is so attractive to other nations as it forwards SSP1. Awhile ago during a discussion of China's development goals, I posted links to its program that's very ambitious and doing very well with its implementation, the main introduction portal being here .

William Gruff , Aug 3 2019 0:28 utc | 35
psychohistorian @11 asked: "The concept of multilateralism is not completely clear to me in relation to the global public/private finance issue and I am not of faith but of questions...."

karlof1 @31 covered it pretty well I think, but I want to try to answer in just a couple sentences (unusual for me).

Global private finance is driven by one thing and one thing only: making maximum profits for the owners quarter by financial quarter. Global public finance is driven by the agendas of the nations with the public finance, with profits being a secondary or lesser issue.

This boils down to private finance being forever slave to the mindless whims of "The Market™" (hallowed be Its name), while public finance is, by its nature, something that is planned and deliberated. Nobody can guess where "The Market™" (hallowed be Its name) will lead society, though people with the resources like placing bets in stock markets on the direction It is taking us. On the other hand, if people have an idea which direction society should be heading in, public control over finance is a precondition to making it so.

Passer by , Aug 3 2019 0:32 utc | 36
Posted by: karlof1 | Aug 3 2019 0:19 utc | 34

"The continuing practice of Neoliberalism by the Outlaw US Empire"

I'm not sure this will be the case anymore -

Former heads of DHS and NSA explain how the U.S. can keep Huawei at bay

"Perhaps more importantly, this proposal demonstrates one way the U.S. can reinforce elements of what the government calls the “national technology and industrial base” (NTIB), the collection of companies who design, build and supply the U.S. with vital national-security related technologies."

https://www.cnbc.com/2019/07/11/chertoff-mcconnell-us-needs-to-have-more-allies-to-bypass-huawei.html

[Aug 03, 2019] The USA begun to degenerate economically after the "stagflation" crisis (triggered by the oil crisis of 1974-5) that effectively destroyed the prestige of Keynesianism in the West and paved the way to the rise of Neoliberalism as the new main capitalist doctrine (Neoliberalism existed since the 1930s).

Aug 03, 2019 | www.moonofalabama.org

vk , Aug 3 2019 14:18 utc | 91

@ Posted by: Hor, Jennifer | Aug 3 2019 11:33 utc | 77

The Nordic nations became rich welfare states in the post-war for different reasons.

Sweden already was a rich kingdom/country since the end of the 18th Century. In both WW it managed to stay neutral, so it went through them relatively unscathed.

Norway was a very poor country until North Sea oil was discovered at the beginning of the 1980s.

I don't know the case of Denmark.

Finland was a poor country which was basically rebuild from zero in the aftermath of WWII, thanks to the neutrality pact between the USA and the USSR. It was decided that Finland would be a very prosperous country, without many inner social contradictions, in exchange for absolute neutrality during the Cold War.

Iceland was very frugal, simple and classless village of fishermen that suddenly became very prosperous after the 1990s thanks to the sudden expansion of the world banking sector.

You see, all these countries became prosperous for different reasons. But what they all had in common was:

1) they all had relatively strong socialist parties/well-organized working classes in the aftermath of the WWII (except Iceland); and

2) all of them were insignificant countries in a very significant geographic location (frontier between Iron Curtain and Western Europe). Iceland's case is emblematic in this aspect, since it won the Cod Wars against a much more powerful enemy (the UK) solely on its geography (as the main outpost of the GIUK gap).

To put it simply, the countries which managed to create "welfare states" were countries usually at the cordon sanitaire area that, in a very smart and eventful way, managed to successfully use both superpowers to extract maximum wealth from an USA that, at the time, still had the material means to make small countries rich and prosperous (Taiwan and South Korea were the most emblematic cases in this aspect: both begun their respective industrialization essentially by blackmailing the USA and the USA/Japan, respectively).

As we well know now, the welfare state quickly evaporated when:

a) the USA begun to degenerate economically after the "stagflation" crisis (triggered by the oil crisis of 1974-5) that effectively destroyed the prestige of Keynesianism in the West and paved the way to the rise of Neol