Posts Tagged ‘Bernanke’

A brief pause from bitch-slapping Paul Krugman to focus on Soviet and American political-economy

February 22, 2010 5 comments

Do us a favor: Take off your ideological blinders; suspend the effects of your years of instruction in the indoctrination camps known as the American education system for just a moment.

We’re going to let you in on a secret: Despite what you have heard and been taught all your life, there was, in fact, very little difference between the economy of the United States and that of the Union of Soviet Socialist Republics.

That’s right. Do you need to sit down and catch your breath? Breathe, breathe … Better?

O.K. Let’s continue.

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The case for bitch-slapping Saint Paul until he wets his panties: When Harry met Josef

February 20, 2010 1 comment

Harry S. Truman and Josef Stalin

As we stated in The case for bitch-slapping Saint Paul until he wets his panties: Dog whistle economics…, Paul Krugman’s support of a higher inflation target by the Federal Reserve is nothing more than a call to reduce still further your standard of living – to break you with starvation in order to fluff up the profits of American corporations. His reputation aside, the support of this policy results in just the consequences we stated.

That the left continues to tolerate him in their midst is a damning admission of their intellectual poverty.

In support of this view we have introduced the case of the Soviet Union, and no doubt this confused you: Wasn’t the Soviet Union a command economy? Did they not declare themselves socialists – or, still worse, communists – and avowed enemies of all things capitalist? What possible parallels can there be in the economies of the two countries?

In the Messiah’s 2010 Economic Report of the President, we find these words:

Chapter 4 examines the transition from consumption-driven growth to a greater emphasis on investment and exports. It discusses the likelihood that consumers will return to saving rates closer to the postwar average than to the very low rates of the early 2000s. It also describes the Administration’s initiatives to encourage household saving. Greater personal saving will tend to encourage investment by helping to maintain low real interest rates. The increased investment will help to fill some of the gap in demand left by reduced consumption.

The report highlights the “Administration policies, such as investment tax incentives, designed to promote private investment.

It’s a hoot, and if you by chance are in need to a sleeping aid, you just might want to crack it open and feel your eyelids slam shut within fifteen minutes – mouth open, plaster cracking, full-bore snoring, baby! It is the stuff of which boiler-plate is made – the kind of crap that passes for economic policy on the campaign trail, and in town meetings staged for television, with some portion of the audience employed as a prop behind the speaker. Politicians are for investment, in much the same way they are for national security, the flag, and family values.

For politicians, every economic problem afflicting society can be fixed if we just encourage more investment.

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The case for bitch-slapping Saint Paul until he wets his panties: Dog whistle economics…

February 18, 2010 Leave a comment

When politicians want to say something about “those people” yet wish to remain within the bounds of civil conversation, they will often employ certain code words that allow them to express their actual position while remaining open to ambiguous interpretation. The Wiki defines the dog whistle this way:

Dog-whistle politics, also known as the use of code words, is a term for a type of political campaigning or speechmaking which employs coded language that appears to mean one thing to the general population but has a different or more specific meaning for a targeted subgroup of the audience. The term is invariably pejorative, and is used to refer both to messages with an intentional subtext, and those where the existence or intent of a secondary meaning is disputed.

In economics right now there is a dog whistle conversation being carried behind your back. The expressed subject of this conversation is whether the Federal Reserve should explicitly set a higher target for inflation and attempt to achieve this higher target as a matter of policy. The conversation is dry, technical, and purposely so, since it is designed to discourage you from joining in or even noticing it.

The conversation, however, is really about how far to go in breaking you with the threat of starvation.

We covered one side of this conversation in the post, The case for bitch-slapping Saint Paul until he wets his panties…, in which we focused on Paul Krugman’s argument that increasing the target for inflation would make it easier for Washington to collapse your wages, and increase corporate profits: You are less likely to notice the deterioration of your standard of living if your wages stay the same while the prices of everything you buy goes up. And, inflating away your income is preferable to a company-wide announcement that everybody has to take a 10 percent pay cut – except, of course, the CEO, his/her gang of bandits, and the company’s bond, and shareholders.

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The case for bitch-slapping Saint Paul until he wets his panties…

February 16, 2010 1 comment

Remember back in the good ole days when a white man could beat a black child with impunity?

We do. We remember Willie Corgan emerging from the coat room at the back of the class with his fists clenched in agony, and tears streaming from his eyes, closely followed by our sixth grade teacher, his beating stick in hand.

Willie was a fuckup who could not stay out of trouble with that white man.

Our teacher would keep track in the corner of his blackboard of the number of disruptions each of us created in class, and on Fridays it would be time to settle up. You would be administered a severe whipping across the fingertips with a long thin piece of wood – probably bamboo or some other reed – which the teacher kept in a jar of some liquid, assuming, we imagine, that the moist tip would intensify the pain of our thrashing.

We usually never accumulated more than two or three stars apiece – it took three stars to be invited into the coat room with the teacher. In one week, however, Willie accumulated 18 stars.

Willie would not be broken.

On Friday, each of us would sit patiently in class until it was our turn to be called. Willie always had the honor of going first; like Greece, only smaller, younger and black.

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Why didn’t capitalism collapse in 1929? (Final)

September 27, 2009 Leave a comment

Continued from here

If we try to reconstruct the underlying events leading to the Great depression according to Marx’s theory, we arrive at this narrative:

At the beginning of the Great Depression the owners of businesses would have been  experiencing some definite fall in the profitability of their operations. They would have then began implementing the previously mentioned four options to deal with it: (1) Slowing the rate of new investment in plants and machinery; (2) closing existing plants, etc.; (3) reducing wages of their work force; and (4) aggressively seeking new markets for their products.

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Why didn’t capitalism collapse in 1929? (Part three)

September 25, 2009 4 comments

Continued from here


The great vampire squid wrapped around the face of humanity (click to expand)

If anybody thought that the magnates of industry and finance were going to lie down and play dead simply because some obsessive, detail oriented, incredibly well read, old fart from Germany offered evidence that their future was bleak … well, Matt Taibbi  has two words for you: Goldman Sachs.

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.

It would be nice to be able to follow that particular rabbit down its hole, but we are concerned not so much with the historical record of how this most rapacious and predatory form of capital came to dominate your life, but the theoretical model which predicted that it would.

If Grossman is correct, Marx detailed four steps businesses would take in the event of any collapse to restore the economic activity, i.e., to turn a breakdown into a temporary downturn:

  1. Slow down the rate of investment in new machinery, plant, and equipment, raw materials and inventory
  2. Devalue the existing machinery, plant, and equipment, raw materials and inventory
  3. Reduce employee wages
  4. Foreign expansion

It can be argued by critics of this theory of collapse – and many have made this argument – that the performance of the American economy coming out of the Great Depression, and, in particular, following World War II, proved much of Marx’s theory wrong. In the end, capitalism did not collapse despite improvements in the productivity of labor – it proved resilient and ultimately rebounded from a near cataclysm.

But, those critics would have to explain this quote from Lord John Maynard Keynes:

Thus it is fortunate that the workers … resist reductions of money-wages … whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.

If we are interpreting this passage correctly, Lord Keynes seems to be saying that you are so dumb that as long of you have a job you will not complain that your real standard of living is falling as a result of inflation – provided that drop is achieved gradually and continuously. If the amount of dollars written on your paycheck stays the same, or even increases, you can be incrementally impoverished through inflation without any significant complaint on your part.

What is more, Keynes observes, inflation not only serves to reduce real wages, it can also reduce real salaries, rents, and interest on debt.

Thus Keynes stumbles on a way to do much of what Marx said had to be done – slow the rate of investment in new plant and equipment, devalue the existing stock of plant and equipment, and reduce wages – in a fairly novel way: by progressively and gradually depreciating the purchasing power of the currency. Inflation became a permanent fixture of the American economy.

The question to ask, however, is: Did the policies advocated by Keynes cause the recovery of the economy in the aftermath of the Great Crash of 1929?

This is not a difficult problem for economists to solve. It is fairly easy to build a Keynesian model of the economy in the 1930s, put in the changes imposed on the economy by the New Deal and the Federal Reserve, and measure the effects of those changes on economic activity.

Better yet, there is a wealth of economic data at hand which can be, and have been, sifted innumerable times to discover the answer to that question.

In the badly split field of economics, the results of those studies seem to have one common point of agreement – total hours of work remained well below its peak level until the outbreak of World War II:

Hours worked per adult–including government workers–fell about 27% between 1929 and 1933, and in 1939 remained about 22% below the 1929 level. Many people, including economists, are surprised when they read that there was little recovery in hours worked during the New Deal, because the unemployment rate declined, and typically declines in unemployment go hand-in-hand with higher labor [hours]. But changes in the unemployment rate don’t provide a good proxy for changes in labor [hours] during the New Deal because some New Deal programs included explicit work-sharing. By reducing the average workweek, the New Deal was able to spread employment across workers, but this doesn’t mean there was an increase in the amount of work that was done.

Hours of work never recovered! Capital had reduced those average hours approximately along the lines proposed by the Black-Connery legislation, which mandated a reduced thirty hour work week.

And, if hours of work did not return to peak levels it is obvious capital had suffered precisely the kind of final breakdown predicted by Marx’s theory.

Moreover, unemployment, although below the peak levels earlier in the decade, still was above 15 percent in 1940, despite a large-scale government make-work program.

James K. Galbraith inadvertently points out that much of this “recovery” was an illusion built on Washington debt financed spending:

Roosevelt ran (in 1936) on a platform that he would try to reduce significantly, if not completely eliminate, the deficit in the 1937 fiscal budget — and he sent to Congress a budget that did just that. Roosevelt won by a landslide — but the economy fell like a landslide and in the first 9 month of 1937 the economy fell back to approximately where it was in 1932. In other words “fiscal responsibility” in just 9 months led to a landslide fall in the economy back to where it was near the bottom of the Great Depression . 9 months of fiscal responsibility had undone the good work of 4 years of deficits.

No doubt, this debt was a windfall for investment bankers like Goldman Sachs, who could afford to buy the bonds issued by Washington, and then sit back and watch their otherwise superfluous funds appreciate on the public dime. But, it served no purpose for the millions of working families who were still facing a generational economic catastrophe.

Which leaves Marx’s fourth point – foreign expansion:

Well, there was this rather ugly dust up that cost 82 million lives, left the United States as the only functioning industrial power on the planet, and its currency as the world’s reserve money…

To be continued

Why didn’t capitalism collapse in 1929? (Part two)

September 23, 2009 4 comments

Continued from here

The oddest statement to be found in Grossman’s reconstruction of Karl Marx’s Theory of Capitalist Breakdown is the one he makes at the very end of his essay:

The historical tendency of capital is not the creation of a central bank which dominates the whole economy through a general cartel, but industrial concentration and growing accumulation of capital leading to the final breakdown due to over-accumulation.

What is so odd about this statement is that it pretty much sums up exactly what happened following the collapse of the economy during the Great Depression!

Grossman made this argument – again, oddly enough – not in response to  a mainstream economist contemporary, or some defender of capitalism, but in response to another Marxist who claimed Marx had been wrong in his prediction of capitalism’s demise.

Wikipedia: Hilferding and his wife, 1928.

Wikipedia: Hilferding and his wife, 1928.

The guy’s name was Rudolf Hilferding, and he made a big splash predicting that capitalism would eventually be taken over and regulated by the biggest banks of each nation.

Before we get to Mr. Hilferding, however, we need to address this very odd statement by Mr. Grossman.

Grossman indeed made the above statement, and, it is pretty obvious life corrected him on this point. But, in his defense, we should point out that Grossman was only talking about the raw economic logic of capitalism.

Grossman spends a considerable amount of time in his essay showing how Marx stripped every non-essential feature of a capitalist economy from his theoretical model in order to reduce it to its most minimal elements. Gone were such things as prices, money, imbalances between industries, and between supply and demand.

He goes further: Marx assumes there is no foreign trade, no banks, no credit, no other nations, no classes except workers and the owners of businesses, and, at the start of his model, competition between businesses are assumed to be at equilibrium.

In doing this, Marx essentially is discounting every other known economic factor which has been cited by one economist or another as the causes of economic disturbances in a capitalist economy – gone are Krugman’s greedy Wall Street banks, hyper-salivating mobs of irrational investors, and, impotent and corrupted regulators, as well as income inequality, discrimination, huge bonuses, colonies, oil price shocks, and acne.

In other words, Marx strips capitalism of every recognizable feature, reduces it to its most abstract processes, and asks himself: Can this thing survive? Can an economic system rooted in scarcity and the need for work survive as it undermines both of those conditions?

Marx’s conclusion is fairly straightforward: Given its focus on the profitability of its undertakings, capital is compelled toward the “unconstrained development in geometrical progression of the productivity of human labour.” Human labor takes on an almost supernatural quality: Books which once took months to transcribe can be copied in their entirety from a digital archive in fractions of a second; agriculture, for centuries the labor-intensive vocation of the greater part of humanity, is reduced to the labor of the smallest fraction of the labor force; the sheer consumptive power of economic activity is such that it threatens to destabilize the climate itself.

But, the process is not merely technical, because capital itself is rooted in the very work which is being abolished by the geometrical progression of productivity. Hence, even as it abolishes work, it is abolishing its own conditions of existence. The more productive work becomes, the greater the quantity of goods thrown on the market; the greater the quantity of goods thrown on the market, the greater the mass of profits; the greater the mass of profits, the greater the need to convert those profits into more raw materials, more machines, and more employees, and bigger markets.

When ever capital runs up against the limits to its expansion crises erupt, followed immediately by efforts to exceed the constraints: improved machinery, new markets, new sources of raw materials, competition between businesses, nations, etc., seeking always to make room for the increased application of employees to an expanded scale of production. All of these methods of rationalizing economic activity, however, are only temporary, and merely set the stage for the next round, where the interruption of expansion takes on an even greater magnitude.

Ultimately, there is no possibility of further expansion, and the economic contraction which characterizes previous episodes of dislocation becomes a permanent feature of society. From this point forward hours of work must be reduced and they are, in the form of a massive implosion of employment.

Wherein Grossman gets served by the Masters of the Universe

In none of this bare outline of Marx’s theory (provided we have offered an accurate view) is there a notion of any central bank emerging from the rubble of society to take control of the economy and operating it along the lines proposed by Hilferding.

Ben Bernanke and Jean-Claude Trichet, head of the ECB

Ben Bernanke and Jean-Claude Trichet, head of the ECB

According to Hilferding, capitalism was moving not toward some massive implosion driven by the reduction of work, but toward some form of equilibrium maintained by the biggest banks who would rationalize the more chaotic features of the economy, and set the stage for some later political revolution of the working class, which would then take over this instrument for its own ends:

Finance capital puts control over social production increasingly into the hands of a small number of large capitalist associations, separates the management of production from ownership, and socializes production to the extent that this is possible under capitalism … The tendency of finance capital is to establish social control of production, but it is an antagonistic form of socialization, since the control of social production remains vested in an oligarchy. The struggle to dispossess this oligarchy constitutes the ultimate phase of the class struggle between bourgeoisie and proletariat.

There was, in Hilferding’s view, no inherent reason for capitalism to implode as Marx believed; it simply suffered from the fragmentation of industry, which prevented the smooth coordination of all of the elements of the economy. But, the very development of capital itself – particularly the growing role of the banks in the economy – would facilitate this coordination under some form of banking cartel.

Indeed, as Hilferding pointed out, “Even today, taking possession of six large Berlin banks would mean taking possession of the most important spheres of large-scale industry …”

We can infer from the fact that Ben Bernanke still gets invited to all the best parties in Washington and New York that, in fact, something very much like Hilferding’s scenario emerged from the economic chaos which erupted on Thursday, October 24, 1929.

Marx may have stripped away every non-essential feature of capital to show why it would collapse, but, in doing so, he also stripped away some pretty important attributes of capitalist society that we try to capture with the term political-economy. Plainly, capital is not just an economic formation, it is also a political formation – full of self-interested people, who have lobbyists, and bagmen, and the kinds of living standards inconsistent with some cranky old dead guy in Germany who predicted they would soon have to get real jobs, if there are any jobs left.

The Federal Reserve Bank was born just about the time Hilferding was writing his most famous work, from which the above statements are taken. By the time of the Great Depression, it had already captured much of the economic policy role in Washington. The events which unfolded before the ink was dry on Grossman’s book would seem to defy Marx’s prediction of capitalism’s inevitable demise.

To be continued