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Inflation, the negative rate of profit, and the Fascist State (Part two)

April 10, 2011 3 comments

I made the following points in the first part of this series:

  1. As regards the definition of inflation: The definition of inflation found in the Wikipedia entry is deficient because it assumes that the value of money is simply the reciprocal of the prices of commodities. This argument is a tautology which provides us with no real understanding of the problem of inflation. We are led to believe that inflation can be thought of as a rise in the price of commodities or, alternately, the depreciation of the “real value” of money. And, what is the “real value” of money? According to the economist, the “real value” of money is its purchasing power, i.e., the reciprocal of the price of the commodity. I will show why this definition of the depreciation of money is inadequate.
  2. Prices versus consumption: The Wikipedia definition is superficial, i.e., it is limited to generally rising prices. This only looks at the problem from the least important aspect of inflation, the increase in prices of commodities. But, if the amount of money in circulation is fixed, as it is more or less for each member of society, we can see also that inflation implies the reduced consumption of the mass of society — the impoverishment of society.
  3. Consumption versus production: Moreover, the Wikipedia definition of inflation only examines the effects of rising prices on consumption. Once we go beyond money as mere means of purchase and consider it as the money form of capital, i.e., once we leave the world of consumption and enter the world of production, we find that these rising prices act to reduce the profitability of productive economic activity. The depreciation of money acts to reduce the average rate of profit. It can be thought of as a negative rate of profit resulting from the depreciating purchasing power of money-capital over time.
  4. Money and demand: The Wikipedia’s explanation of the causes of inflation is nothing more than a tautology. First, the two causes identified as the cause of inflation: 1. an excess of the rate of growth of the money supply over the general rate of expansion of economic activity; and 2. the imbalance between the rate of expansion of demand for commodities over the rate of growth of the supply of commodities, resolves themselves into one and the same cause: the excess in the money-demand for commodities over the production of these commodities to satisfy this money-demand, or, alternately, the decline in the production of commodities relative to the money-demand for those commodities. Second, whenever we find that the rate of growth of the supply of commodities falling behind the rate of growth of the money-demand for these commodities, we cannot be speaking of imaginary demand — such as the human need created by a hungry belly — but “real” money-demand — i.e., a hungry belly with a wallet full of cash. The capitalist is not in the business of producing for people who imagine they are hungry, homeless, and naked, but only those who can prove they are hungry, homeless, and naked, by presenting him with sufficient cash to purchase food, shelter and clothing. On the other hand, money-demand is not limited to satisfying hungry bellies — it is still money-demand even if the demand to be satisfied is that of generals, national security agencies, or failed banksters. The authors of the entry discuss the imbalance of money-demand over the supply of commodities to satisfy this demand as if this is the entire story.
  5. Inflation as a policy: Only in the fourth paragraph does the Wikipedia entry hint at the most important characteristic of inflation: that it is not a naturally occurring economic malady — the result of actual processes arising from the production, exchange and consumption of commodities, but is a matter of Fascist State policy. Thus, only here do we find that it is the deliberate policy of the Fascist State to reduce the consumption power of society, its productive capacity, and to ensure a general and secular, i.e, chronic, inadequate supply of means of consumption in relation to the money-demand for those means of consumption — that the economic policy of the Fascist State is to maintain society in a condition of a wholly artificial scarcity.

The Fascist State as a mode of Capital’s own existence

Before we continue further we have to deal with the unstated assumption of the Wikipedia entry that Fascist State policy can be treated apart from and independent of the capitalist process of production and distribution. This notion, which is the standard thinking on all economic issues, and permeates the thinking not only of economists, but also of social revolutionaries and society generally, divides society into Civil Society, on the one hand, and the State, on the other. The fallacy of this sort of thinking is revealed whenever we investigate the causes of social maladies like inflation. We begin with the notion that inflation, poverty, hunger and scarcity arise solely from Civil Society and natural conditions, only to discover, under the capitalist mode of production, that, in addition to the invisible hand of the market, there is also the iron fist of the Fascist State — that the very real material conditions determining the capitalist mode of production have their ideal expression in State action.

Our picture of Capital is incomplete if we naively consider it a purely economic relation. For his part, Marx understood Capital as a social relation that permeated society — penetrating, reconstructing, reconstituting and revolutionizing the sum total of those relations, and, by these means, transforming society in its own image. It is clear from Moishe Postone’s work, “Time, Labor and Social Domination“, that this process, in Marx’s mind, was far more insidious — pernicious, subtle — than is generally understood even by Marxists — who never miss the opportunity to reduce his ideas to caricature — and most certainly by the outright opponents of his ideas, for whom most of his argument passes overhead cleanly and without effect.

In Marx’s theory, the State is not simply, nor even primarily, a sphere of politics; it is, itself, a mode of Capital’s own existence. In every stage of human development up to the present, the State has been inseparable from Civil Society, a mere part  of society’s greater division of labor in the social act of production. In capitalist society, however, the State appears indifferent to Civil Society — aloof from it — and, it is under these conditions that Civil Society begins to imagine its own independent existence apart from, and in conflict with, the State. Although Civil Society is no more than a collection of petty interests in continuous conflict with its own very real, flesh and blood, communal interest, because this communal interest is not the starting point of individual activity, this communal interest arises as an abstraction, in the conception of a General Interest — e.g., the so-called “National Interest” — standing over against the individual’s very real material flesh and blood interest. This abstraction finds its ideal expression in the form of a State that is aloof and indifferent to the many and varied individual interests of society, and, only represents them in the abstract.

In Marx’s theory, I believe (and I stand to be corrected if I am wrong), this conflict between Civil Society and the State arises from the mutual conflict of all of these petty interests with each other that arises from their increasingly universal and all-sided competition, and because their innumerable separate activities are not subjected to their common control and direction. To really represent the General Interest of society, the State must be increasingly indifferent to the many petty interests that constitute Civil Society; yet, at the same time, it must be continually reconstituted by Civil Society in proportion as ever newer petty interests emerge.

Hence, the bewilderment of the progressive activist, who finds, despite all of her fulminating and effort to overturn a political regime that favors the “Rich”, the greater her effort, the more surely politics is subjugated to the interests of the very biggest owners of Property. Hence, also, the Tea Party activist, who rebels against the increasing encroachment of the State on her “constitutional liberties”, that the more forcefully she attempts to throw off this oppressive interference in her private commercial activities, the more completely the State dominates them. Hence, finally, the bizarre counsel of the economist, who, trying to solve the riddle of stagnating economic growth in capitalist society, recommends precisely the policy that only deepens this stagnation and destroys the productive capacity of society: Inflation.

Fascist State policy and Civil Society

The problem posed for us by Marx’s theory of social revolution is not why the Fascist State embarks on a policy that maintains society in a wholly artificial condition of scarcity. We can consider and discard any number of competing theories regarding the motives of the Fascist State: that is seeks power for its own sake; or, that it represents the interests of the very wealthiest members of society against the rest of society; or, that it is a body of individuals committed to a collectivist vision of society; or, that it is an instrument of a small group of men and women engaged in a far reaching conspiracy against society bound up with their financial interests, and/or their industrial interests, and/or their political, religious, ethnic, national, regional etc. interests. And, we can also advance any number of anecdotes and statistics to sustain any one or all of these arguments.

Yet, all of these arguments come down to one of two explanations: The Fascist State maintains society in a condition of scarcity for its own purpose, or, for the purposes of individual interests arising from the ongoing conflicts within Civil Society that proceed from whatever source among the innumerable divisions within Civil Society. Thus, even if we accept all of these competing motives as partial explanations for the policies of the Fascist state, all that these competing explanations can tell us is that both for its own interest and the interests of the whole of Civil Society, the Fascist State is engaged in the systematic destruction of the productive capacity of society, and an ongoing degradation of its consumption power — that, for any the reasons advanced (yet, at the same time, for all of them together) the Fascist State is deliberately and systematically trying to maintain a general condition of scarcity for mankind. From this point of view, all of the reasons for the policies of the Fascist State are merely accidental and transitory, as first one and then another reason for these policies come to the fore, and assumes in our mind the position of THE general explanation for Fascist State policies, beside which all the other explanations are merely specific expressions.

Thus, in one instance, the Tea Party activist can assert that the economic policies of the Fascist State result from the collectivist impulse of the Obama administration, while the progressive activist counters that these same policies result from the subjugation of the Fascist State to the interests of the rich; still another faction of society asserts that these very same policies result from the Fascist State’s aggressive foreign policy, while a fourth blames these policies for an alleged loss of national sovereignty and the conspiracy of men and women committed to a New World Order. What none of these competing theories can explain is why any of these alleged causes must lead to the systematic destruction of the productive capacity of society, and the ongoing degradation of its consumption power. All of these explanations cannot tell why, as the productivity of labor increases, the actual productive capacity of society must fall, and society remain trapped in conditions of scarcity.

We are thus forced to assume what Marx’s theory assumes:

First, under the capitalist mode of production the productivity of labor advances under conditions that tend toward what Marx called the absolute development of the productive forces of society — of the capacity to produce an entire world of commodities in a dazzling array and seemingly endless variety. This implies not an excess of money-demand, but its opposite: circumstances under which the production of commodities constantly run into the limited conditions of consumption, which threaten social production with a continuous crisis and wholesale ruin — not just a depression, but an unprecedented Great Depression erupting not in just one country, but throughout the whole of the World Market and at once — which brings society itself to the brink of catastrophe and threatens the very existence of Civil Society itself. And, under which, as a result of this crisis and the Hobbesian environment of universal competition it provokes, the actual flesh and blood material relations of Civil Society escape its control completely and take the form of the Fascist State — absolutely indifferent to it, absolutely hostile to it, and standing over against it as a totalitarian power existing for, and answerable to, no other mandate than its own logic.

Second, insofar as the productive capacity of society advances toward its absolute development, and, therefore, insofar as the onrush of a catastrophic collapse of existing society itself looms on the horizon, and Civil Society experiences this onrush with the level of horror appropriate to it — since it implies, above all, the abolition of all of the existing conditions that are its own premise, and, thus, sounds the death knell for Civil Society itself , and for the State  — the  State detaches itself completely from Civil Society, and, in turn, seeks to destroy the very productive forces that threaten the whole of existing society.

To be continued

Inflation, the negative rate of profit, and the Fascist State

April 8, 2011 2 comments

With the clock counting down to an alleged shutdown of federal government operations, I thought I’d take this moment to discuss and inflation and Fascist State economic policy.

This is what Wikipedia has to say about inflation:

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.

Inflation’s effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in non-monetary capital projects.

Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.

Today, most mainstream economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.

In the first paragraph, inflation is defined as a general rise in the price level of an economy over a period of time. The authors of the entry also state that this general rise in the price level can be thought of as the depreciation in the purchasing power of money — a decline in the “real value” of money. By “real value” the authors of the entry do not mean the classical notion of value — a measure of the socially necessary labor time contained in a certain quantity of dollars — but the ratio by which these dollars can be exchange for a commodity in the market, the reciprocal of which is the price of the commodity. The term “real value” is here only another way of saying the price of the good. Thus, as the price of the good increases, the “real value” of the money declines. It is a tautological statement, and therefore, meaningless.

By the same token, we could say that Bob is taller than Jane, because Jane is shorter than Bob. Nothing of the meanings of “taller” or “shorter” is revealed in the statement. Do these terms describe their respective heights, or weights, or skin tones, or education levels, etc. For someone who enters our conversation from the outside — for instance, a Martian — the meaning of the terms “taller” and “shorter” would essentially be undefined until we explain the concept of height. Similarly, when the economist employs the terms “price” and “value” in a discussion with us (economic Martians) he does not in the least clarify for us what inflation is. We can only walk away with the idea that rising prices and an increase in the number of dollars needed to purchase a commodity are the same thing — a piece of information we already had at the outset of the discussion.

Inflation as a fall in the consumption power of society

There is, however, a more important problem with the definition given in the Wikipedia entry. The authors state that inflation is a general rise in the price level in the economy. They are satisfied with this statement and pursue it no further. We are led to consider inflation from the point of view of the prices of commodities, or, alternately, the purchasing power of the money in our pocket with which we buy these commodities. When the prices of these commodities increase, we must part with a greater sum of dollars from our pocket to exchange for them. But, if the cash in our pockets is finite, the rise in the prices of commodities translates into a fall in the quantity of commodities we can purchase. In this sense, at least, the increase in prices is the same as our impoverishment. A conclusion the authors of this entry are rather reluctant to express.

We can, therefore, make the following statement:

In economics, inflation is a fall in the general level of consumption in an economy over a period of time. When the general consumption level falls, each commodity costs a larger amount of dollars. Consequently, inflation also reflects an erosion in the material living standard of a country – a general decrease in the availability of commodities per unit of dollars. An increase in the price of a commodity is, at the same time, the decrease in the availability of that commodity per unit of money. If the total sum of money in the pockets of the members of society is unchanged, inflation would be reflected in fewer commodities available for purchase in return for this total sum. We can define inflation in terms of prices, or we can define inflation in terms of the actual quantity of commodities available to be consumed by society.

If, 100 loaves of bread are available to be purchased at $1.00 per loaf, an inflation rate of ten percent can be reflected in the quantity of loaves available for purchase falling from 100 to 90; or, it can be reflected in the prices of each loaf rising from $1.00 to $1.10.

So, the question immediately arises: “Why are the prices of commodities rising”, or, alternately, “Why is the quantity of commodities available to society falling.” In the third paragraph of the entry, the authors put forward two different theories:

Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.

Here, the causes of inflation are divided into two: 1. High rates of inflation are said to be caused by excessive growth in the supply of money; and, 2. low rates of inflation are said to be caused either by increased demand for commodities relative to supply, or a decrease in the supply of commodities relative to demand. The division between these to causes is, of course, disingenuous. As Mish Shedlock has argued time and again, if we immediately doubled the amount of money in the bank accounts of every person in society, this mere doubling of their accounts would have no effect on prices unless their behavior changed: unless they took this additional money and actually pumped it into the economy by spending it. In this case, an increased supply of money is nothing more than a sudden increase in the demand for commodities due to a sudden increase in the amount of money everyone had to spend — an increase not in money, but in money-demand. As usual, the economist pretends to have an explanation for inflation that amounts to a tautology. Leaving aside the velocity of money, i.e., the frequency with which a dollar changes hands, there is no way to get an increase in demand unless there is also an increase in the amount of money available to express this demand. Prices do not increase because people suddenly desire more things, but because they have the means to buy those additional things.

But, at least the authors now admit inflation can also come about as a result of a contraction of the supply of commodities even if demand is unchanged. Rising prices can result either from a persistent increase in money-demand in excess of the supply of commodities, or, as we argued above, it can result from a fall in the availability of commodities even as money-demand for those commodities are unchanged — a fall in the real consumption power of society.

The real consumption power of society is only a function of the commodities available for it to consume and has nothing to do with the amount of money in the hands of individuals seeking to purchase those commodities. The amount of money individuals may have in their possession may double overnight, but unless this doubling is accompanied by a proportional doubling in the amounts of commodities available to be purchased, it has no effect on this real consumption power. Likewise, if the amount of commodities available for purchase by the members of society fall, and the amount of money in their possession is unchanged, the real consumption power of society will fall without any change in the amount of money in their wallets. Thus, the Federal Reserve Bank’s massive quantitative easing program and Washington’s equally massive federal fiscal deficits, despite creating trillions of dollars each year out of nothing, cannot increase the material consumption power of society, because this ex nihilo money creation does not in any way create more commodities..

While the demand for commodities in a capitalist economy can only be expressed in money-demand for those commodities, the supply of commodities to be purchased is determined only by production. Only production can increase the availability of commodities, and only this increase in commodities can increase the ability of society to consume. It is, therefore, impossible to understand inflation by referring only to the money-demand for the existing stock of commodities, we must also consider inflation and its effects on the actual production of these commodities.

Inflation or the Negative Rate of Profit

In relation to the price of a commodity inflation is expressed as a rise in the price of the commodity; in relation to the quantity of the commodity available to be purchased, inflation is expressed by fall in the quantity of commodities available to be purchased by a given sum of money-demand. But, how is this quantity of commodities determined? In a capitalist economy, production is determined by profit, and undertaken solely with the eye to realizing profit. However, profit is the rate of return on an investment of a given sum of capital. The capitalist lays out so many dollars of his capital in the form of labor power, and necessary materials of production, and he expects to realize this investment plus a certain rate of profit upon final sale of his commodities.

As we have shown in previous posts, if the capitalist advances $100 in labor power and the other necessities of production, and the average rate of profit is 10 percent. He expects to realize $110, or his original $100 plus a profit of $10. On the other hand, inflation during this same period reduces the purchasing power of his capital by ten percent, leaving the capitalist with little or no real return. He has advanced $100 with the expectation of realizing $110, but he has, in fact, only realized $100 of actual purchasing power. His capital, having nominally increased from $100 to $110, has actually remained unchanged in its purchasing power of $100 — despite his nominal success as a capitalist, he has realized no real profit on his investment. While the average rate of profit is nominally 10%, once we subtract the rate of inflation the real rate of profit is 0%.

While the consumer experiences inflation as a loss in purchasing power of her money, from the standpoint of the capitalist, inflation is a negative rate of profit. Since, he is an intelligent person who is not interested in beating his head against the wall of the Federal Reserve, and knows the Feds action will drive up the prices of commodities generally, our capitalist removes his capital from productive employment and uses it to speculate in the oil futures market. Thus, the productive capacity of society is reduced in proportion as inflation rages within the economy, and this loss of productive capacity reduces also the consumption power of society. Side by side with the increase in the prices of commodities, the availability of commodities shrinks; side by side with the falling productive capacity of society, the consumption power of society falls.

At this point you are scratching your head, because you notice in the fourth paragraph of the Wikipedia entry the following:

Today, most mainstream economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.

Could this be right? If, inflation, a general rise in the prices of commodities, expresses both the reduced capacity of society to produce and a reduction of its power to consume, why would economists advocate for “a low, steady rate of inflation”? Why would they advocate for policies that drives productive capital into the arms of speculators? Why would they advocate for policies that deliberately impoverish the mass of society?

These questions are, of course, deliberately misleading. For quite mischievous reasons, I am asking you to consider the issue from the standpoint of the economist, who, more than any other single profession in society, is constantly examining the problems of society through some completely bizarre lens that turns the whole of the world upside down. While we have seen thus far that the amount of money in the hands of society has absolutely no impact on its consumption power, and that this consumption power is solely a function of its productive capacity — its capacity to produce commodities for the satisfaction of human need, the economist, who sees the problem entirely from the perspective of money, tries to explain the consumption power of society with reference to a change in the given supply of money. While money has no role in the productive and consumption capacity of society, and only serves as a means of exchange — a necessary bridge between the act of production and the act of consumption — this bridge is turned by the economist into the entire explanation for both the progressive collapse of production and the progressive collapse of consumption.

The collapse of production and consumption — the growing impoverishment of society as a whole  — becomes, through the eyes of the economist, a problem of price inflation.

To be continued

Billy Mitchell and the Austerians: The Case of the False Dilemma

July 10, 2010 Leave a comment

Ever get the feeling you were being offered a choice between two bad alternatives (we mean, of course, other than every election day)? Well, we looked at the menu of choices offered in the debate between the proponents of austerity and the proponents of stimulus and came away with the queasy feeling that we are being set up no matter which option we choose.

Read more…

Jobless Recovery, or, The End of Work…

August 10, 2009 2 comments

We thought you might need a primer on how to interpret the unemployment figures released by Washington last week:

PRIMER: Frankly, you can safely ignore the unemployment figures, because they are meaningless, and, in just a few months, Washington will revise them to show how meaningless they were.

End of primer…

*****

new-orleans-unemployment-ine“WASHINGTON HAS STOPPED COUNTING THE UNEMPLOYED”

While the Bureau of Labor Statistics showed a remarkable easing in the pace of job losses – “only” 247,000 jobs lost in the past month – more reliable sources show the rate at which jobs are being lost has not slowed in the least.

According to Mish Shedlock, Washington has simply stopped counting unemployment, and is engaged in a statistical shell game:

Taking one time auto sector anomalies and manipulation of the participation rate into consideration, today’s job report was much weaker than looks at first glance …

… I consider these job losses to be depression level totals. Admittedly conditions are not as bad as the great depression, but this is certainly no ordinary recession by any economic measure including lending, housing, bank failures, jobs, the stock market, commodity prices, treasury yields etc. …

I have been calling for the rate to hit 9.8% by August. With only one month coming, today’s report shows that is not going to happen. However, much of the “improvement” in the numbers today are as a result of the participation rate falling by .2%. In other words, the BLS stopped counting.

TrimTabs’ estimates of the unemployment rate, based on real-time tax data, show breathtaking job losses continuing in July and predicts massive revisions for official economic statistics over the next few months:

TrimTabs Investment Research estimates that the U.S. economy lost 488,000 jobs in July, considerably more than the consensus estimate of a loss of 305,000 jobs. In addition, TrimTabs expects the Bureau of Labor Statistics to revise its job loss estimates sharply higher for the first half of 2009 based on the latest unemployment insurance survey results.

“While Wall Street is convinced the recession is over, the economy continues to shed jobs at an alarming rate,” said Charles Biderman, CEO of TrimTabs.

TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from all salaried U.S. employees. Historically, TrimTabs’ employment estimates have been more accurate than those of the BLS.

And unemployment is not the only suspiciously less downbeat official stat: Chris Martenson has pointed out that government GDP figures are not even reliably reflecting corporate reported data:

… [W]e are being asked by the Bureau of Economic Analysis (BEA) to accept a reported -2% drop in PCE [Personal Consumption Expenditures] and a decline in corporate revenue of -15% , a figure more than seven times larger.

Of course, the discrepancy between the two cannot be reconciled. It is impossible. One must accept one or the other.

I will point out that a -15% decline in corporate revenues is also in alignment with sales tax data from the states (down some 10% yr/yr), unemployment (9.5% and climbing) and many other economic measures.  I will recall here that good data is that which aligns with other data.

How is such a misleading GDP report created? (Hint: think sausages)

The answer lies in a disturbing mixture of seasonal and hedonic adjustments, imputations and other statistical wizardry not subject to review or insight. We are asked to simply accept the results without question.  Disturbingly,  the Wall Street/MSM (Main Stream Media) spin-machine runs off with the GDP report as though it were the sacred truth itself…

WHY UNEMPLOYMENT STATISTICS ARE SUCH A PROBLEM

Perhaps, we should take a step back from the debate over unemployment statistics and try to find out why unemployment is such a pressing problem in the country – the kind of political problem which exposes them to misleading data, statistical manipulation, and even outright fraud.

The obvious answer, that unemployment is a problem because we like to eat! is not as accurate as it seems on the surface. It actually takes very little time to produce the things we consume in the course of a normal day, week, or year.

And, if the truth be known, new employment adds nothing to our material standard of living – if eating were the problem we could easily get by with almost no employment at all.

We work because we must work, not to put food on the table in any material sense.

This contradiction, that our work produces work, lies at the core of the problem unemployment statistics highlight.

And, the root of this contradiction is found along a little known, less discussed, and even less understood fault line running through our economy: The boundary between what we can call the core of our economy and its superfluous periphery.

At the core of our economy are the big organizations – General Motors, Ford, Apple, Exxon-Mobil, Archer Daniels Midland, etc. – which produce the things we use each day.

These include all of our food, clothing, shelter, iPhones, stretch his and her Hummer limousines, and, of course, that 42 inch, wide screen, high definition plasma television with its 200 channel of reruns of old Seinfeld episodes.

It also produces all the things we need to produce the things we use: factories, computers, and so forth.

While it might seem like a lot of stuff, in fact, the production of the things we use everyday, and the production of all the things we need to produce the things we use everyday only comprise a small portion of our economy.

The superfluous periphery of our economy, by contrast, is actually the largest part of our economy, and is composed of economic activity which produces nothing.

It includes, Goldman Sachs, lawyers, economists, aircraft carriers cruising the Persian Gulf, and you – most likely: which is to say, in all likelihood, you go to work each day and engage in work which produces no real good.

It is not that you do nothing of ethical value – you could, for instance be a social worker, protecting at risk kids from life on the streets; but, in this capacity you produce no more economic value than a trader at the proprietary trading desk at J.P. Morgan, or, that worthless swine, Doctor Dre, shilling for some filthy beer company.

Only work that produces a good which eventually ends up on your kitchen table, or otherwise consumed, is work which produces economic value.

All other work – from slaughtering entire villages in Afghanistan, to figuring out how to scam more money for Medicare, under the guise of reforming health care, in Washington, to selling the idea that global warming can be slowed by the Cash for Clunkers program – belongs in the superfluous periphery of the economy.

And this is the heart of the problem we face regarding unemployment: The two parts of our economy work in entirely different ways.

howamericansworked

THE CORE ECONOMY: SHRINKING SINCE BEFORE THE GREAT DEPRESSION

Let us take the core economy – which we can call the “agriculture-industrial complex”: It hums with energy; people who work in this sector of the economy take their shower after they come home from work, because the work is dirty, monotonous, and … well – its industrial.

People work in industry for years, so they can save money to send their kids to college, so their kids don’t have to work in the factory.

It’s the American dream.

The point of the core economy is to produce as much stuff – Hummers, iPhones, and 42 inch, high definition, wide screen plasma televisions – with as little effort as possible.

And, for the most part, the agriculture-industrial core of the economy has been very successful in that regard: in the not too distant past about 60 percent all people worked in this part of the economy.

Today, industrial work makes up a relatively insignificant part of the labor force; and, agriculture, which once occupied the work of 98 percent of the population, now occupies the work of less than one percent of the labor force.

All of this is obvious to you, but we touch on it for this reason: The industrial core of our economy is shrinking, and has been shrinking since before the Great Depression.

Since the big D, all the growth in employment has occurred outside the industrial core of the economy.

This is probably no shock to you as well, and it is simply a continuation of the same shrinking labor force which occurred in agriculture as people moved off farms and into industry.

In much the same way as agriculture was converted from small family farms into massive industrial production facilities, producing a massive increase in the productive capacity of our society (so much so, that we don’t even really keep track of agricultural employment in the monthly statistics) – the same process has been taking place in industry in general since the Great Depression.

The industrial core of the economy has become so massively productive that it probably takes as little as 10-15 million people to supply all the goods produced in the society – everything from iPhones to Trident submarines to the physical network connecting you to this web page.

That’s the material needs of 300 million people satisfied by the efforts of about five percent of the population.

In theory, the core agriculture-industrial complex of the economy provides a staggering example of the ease with which we can produce everything we need to live on with the most minimal effort.

In practice, however the case is precisely the opposite: The more productive the core of the economy becomes, the more work looms as the most pressing issue of society – a matter of life and death, an insistent angry throbbing to which even the most maladroit, rhythm-less, clumsy politician must dance.

The beat in this Totentanz is laid down by the peculiarity of the capitalist mode: On the one hand, capital revolutionizes work, magnifying its productive powers beyond anything previously witnessed in human history; but this vastly expanded power to produce carries the most bizarre historical irony: Work achieves greatly enhanced productive power only to become its own end – and we become the mere means to its further development.

To put this in less metaphysical terms: A progressively longer social work day becomes the essential condition for the exploitation the productive capacity of work – to realize our enhanced ability to produce 42 inch, high definition, wide screen plasma televisions, we must work harder and longer.

This may not seem like a contradiction to you, but it is: the entire point of increased productivity is to produce more goods with less effort, yet we are now faced with a situation where the ability to produce more goods with less work itself requires an increasingly longer social work day.

To understand how this happens, it is important to understand how differently the two major sectors of our economy work.

LEVERAGING THE CORE ECONOMY TO PAY FOR SUPERFLUOUS WORK

We have already touched on how incredibly productive the core economy is, and how this is leading to shrinking employment in the core economy; but, we should add that this core is not simply the source of all the goods we use, it is also the ultimate source of all the profits in the economy, all the government receipts, and all the wages paid in the economy.

To put it another way: The output of the core economy is being “leveraged up” to pay for the wages and profits of the non-core economy, including government expenditures.

This is how the leverage works: In the core economy the wages paid to the labor force and profits of the companies require so many hours of work – in our own economy, this is about six to eight hours per week. However, the official work week – the point at which your employer is required to begin paying you for overtime – is 40 hours.

The difference between eight hours require by our economy to put food on the table and the 40 hours mandated as the official work week – 32 hours – is the basis for wages, profits and government expenditures in the non-core superfluous economy.

In other words, unless workers in industry were worked longer than is necessary, superfluous work in our economy could not exist.

And, conversely, all work performed beyond this same eight hours, by all employees in the labor force, is waste on a grand scale: If superfluous work was removed from the economy, no one would have to work more than one day a week.

What caused this difference to emerge – between the time we have to work, and the time we actually do work – is the drive on part of the companies in the core economy to maximize their profits by maximizing the length of the work day in the core economy, no matter how productive the labor force becomes.

This drive to maximize the length of the work day in industry ultimately backfired in a big way: causing the Great Depression. As the productivity of the labor force increased in the early decades of the 20th Century, more and more goods were thrown on the market, until it produced a permanent generalized glut of goods, which brought economic activity to a near standstill.

Economists call this problem insufficient aggregate demand, but you can call that explanation the unadulterated bullshit of professional obscurantists.

The crisis had been predicted, and should have been no surprise to anyone – and the solution was not only obvious, it was actually introduced into the Senate in 1934 – The Black-Connery bill to reduce the work week to 30 hours.

It was defeated, of course, but we are not the least bit concerned with this – we are only concerned with the result: Once Black-Connery was defeated, and Washington ignored the voices who said the Depression required shorter hours of work, it became necessary for Washington to find some other way to reduce the massive unemployment which created an urgent threat to social stability.

200px-IrvingfisherThe economist Irving Fisher put the problem succinctly:

Those who imagine that Roosevelt’s avowed reflation is not the cause of our recovery but that we had “reached the bottom anyway” are very much mistaken. At any rate, they have given no evidence, so far as I have seen, that we had reached the bottom. And if they are right, my analysis must be woefully wrong. According to all the evidence, under that analysis, debt and deflation, which had wrought havoc up to March 4, 1933, were then stronger than ever and, if let alone, would have wreaked greater wreckage than ever, after March 4. Had no “artificial respiration” been applied, we would soon have seen general bankruptcies of the mortgage guarantee companies, savings banks, life insurance companies, railways, municipalities, and states. By that time the Federal Government would probably have become unable to pay its bills without resort to the printing press, which would itself have been a very belated and unfortunate case of artificial respiration. If even then our rulers should still have insisted on “leaving recovery to nature” and should still have refused to inflate in any way, should vainly have tried to balance the budget and discharge more government employees, to raise taxes, to float, or try to float, more loans, they would soon have ceased to be our rulers. For we would have insolvency of our national government itself, and probably some form of political revolution without waiting for the next legal election. The mid-west farmers had already begun to defy the law.

To maintain artificially long hours of work in the core economy, Washington had to expand government employment and employment the rest of the superfluous periphery of the economy – which expansion continues today and which has become more urgent as productivity increases.

HOW TO CREATE WORK WHEN THERE IS NO NEED FOR MORE WORK: The political-economy of Green Jobs

The problem of unemployment in this recession, therefore, is not simply a problem of creating jobs, it is the creation of a specific type of job: a job which produce nothing, add nothing to your material standard of living; jobs which only serves to engage you in meaningless, monotonous, and thoroughly superfluous activity, to your disadvantage, and to the disadvantage of the global ecology.

That would be bad enough, but it only gets worse:

Since productivity is increasing faster than the population is growing, the core economy continues to shrink, adding pressure on the economy to produce even more jobs. Now, in addition to creating jobs to offset the increase in productivity, we have to create jobs to replace the jobs lost in agriculture and industry.

And, that is not all – not by a long shot: Leveraging the core economy to create jobs in the non-core economy is itself inflationary – raising the cost of producing everything.

So, as you might have noticed, we have been in an unprecedented inflationary spiral for the last seven decades, which not only forces us to pay more for the same goods we purchased for less yesterday, it also drives core manufacturing companies off-shore – to Mexico, China, and other low wage venues – in search of lower costs of production.

So jobs have to be created to replace the ones which are lost to off-shoring and out-sourcing, and, if this proves more profitable for these companies, even more jobs have to be created to offset the booked profits of these companies.

So, it is not too difficult to understand why the Messiah’s stimulus plan predicted that it would cost some $200,000 to produce a job which pays less than $40,000 a year: Each jobs created has to waste an astounding amount of resources from the core economy.

An interesting example of this waste can be found in the Cash for Clunkers program – the stimulus program which gives you up to $4,500 to trade in your old gas guzzler for one of the more efficient new models. One writer had this to say about the program:

Reduce-reuse-recycle, right? Wrong. Let’s run down that three-item hierarchy of how to be kind to the earth: What’s getting reduced, fuel consumption and pollution by the new car relative to the clunker? Not given the staggering amount of pollution produced and resources consumed to manufacture even the smallest, most fuel-efficient vehicle. Exactly how staggering is tough to nail down definitively; what constitutes “making” a car? Where in the process do we start? Do we count only the material and energy used within the factory grounds? Or do we go a step upstream and count the material and energy used to make those materials used at the factory, and the energy spent to transport them thereto?

We can keep taking steps further and further back until we get to the energy required to extract crude oil and mineral ores from the earth, and that’s what we have to do if we’re looking for the real total energy that goes into a new car. We don’t need actual numbers here, just orders of magnitude, and it quickly becomes clear to all but the most strident Prius-preacher that driving an old car half a million miles is really less taxing to the greater environment than making even just a single new one.

What’s getting reused? Not the powertrain of the clunked cars; as has been amply covered here and elsewhere, the scheme requires their engines be not just disabled but utterly destroyed. Why? Even if we grant the shaky assumption that incoming engines are so worn as to be relatively high polluters, all it would take to ensure they’re refurbished before returning to useful service would be removing one spark plug and filling its cylinder with ordinary playground sand. Voila: the engine is quickly and definitely disabled, yet still reusable after disassembly and reconditioning—and without the clouds of toxic smoke created by an engine being permanently spoiled by sodium silicate. (Transmissions and rear axles are not subjected to the same permanent destruction, they’re simply not allowed to be sold. Why? Well, that’s a very good question and I’m glad you asked it.)

So we haven’t reduced and we’re not reusing; what’s getting recycled? Not much, except maybe sundry non-powertrain parts from the clunked cars and giddy bromides from the pirates who built us a house-of-cards economy financed by money pretended into existence, then arranged for that money to be magicked into their pockets at everyone else’s expense.

It is, however, that last point – money magicked into the pockets of finance capital at everyone else’s expense – that reveals the real horror of the Cash for Clunkers program: To repay the loan incurred by the government and you for that “green” new car will require an income stream lasting as long as 5 years.

For most of us, that means you will have to get and keep an unproductive, superfluous job that will provide the income stream necessary to repay the debt you incurred when you purchased your new efficient automobile.

How much energy will you consume in that five years as you commute back and forth to the office – and, how much will you consume in that office as you perform some meaningless task – while trying to earn enough to pay off that loan?

Welcome to the green economy!

THE END OF WORK

So, you can decide to engage in the mass delusion which says unemployment is peaking and recovery is on the horizon.

Or, you can face up to the difficulty of creating superfluous jobs in an economy where real work is rapidly being abolished by improvements in productivity.

Either approach ends at the same destination: Work will be abolished, and you will be forced to figure out what to do with your spare time – Who knows, you might even decide to enjoy yourself instead of sitting at the kitchen table trying to balance a checkbook.

Whatever you decide, you should know this: In the past two recessions, and in this current one, productivity has been increasing even as unemployment has been collapsing – a situation so dire, and so unprecedented in the post-war economy that economists don’t even have a word for it yet.

They have been floating the term jobless recovery, but absent jobs, how is recovery possible? What company is going to make the investment to produce goods which can never be sold because the customer has no job?

We have coined our own term for it: The End of Work.

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