Posts Tagged ‘New Deal’

What help for the 99ers? (Part three)

December 18, 2010 Leave a comment

Why is Washington so implacably hostile to a reduction of hours of work as the solution to unemployment? And, why has it abandoned the 99ers to their fate?

The answer to these questions is simple: Washington depends on the unpaid hours of labor wrung from the working population as much as capital itself. Washington is not a neutral party when it comes to hours of labor; it is, without exception, the largest single consumer of surplus labor time in society. The entirety of its revenues amount to the unpaid labor of society either directly, in the form of taxes, or indirectly, in the resources it controls through debt or money printing.

This fact is never admitted by progressives, nor even by vulgar proponents of Marx’s theory. The argument made by the Marxists against the current State amounts not to a recognition that the machinery of state shares with capital the total pot of surplus labor time, and, as a result, must be interested in the longest possible duration of unpaid labor, but only that this machinery is under the control of capital and should instead be controlled by the working class. The progressive critique of the State amounts to a demand that this unpaid labor time be devoted to the “improvement of society”; the typical vulgar proponent of Marx differs from this only in that he proposes this be under the direction of a working class party. Neither raises the demand for the abolition of all unnecessary labor, and with it, the state in its entirety.

When the Great Depression erupted Washington suddenly had access to billions of hours of unpaid social labor which it, along with the other great powers, immediately set about throwing into preparation for World War II. Government, already the largest single consumer of unpaid labor time in society, expanded monstrously – consuming perhaps as much as 40 percent of national output. But, in the aftermath of that horrible conflict, we really see its voracious hunger, and insatiable lust for surplus as the Truman administration conceived of and implemented a policy of a permanent war footing: The Cold War.

In his annual message to the Congress, delivered January 12, 1951, Truman opened with these words announcing the birth of the national security state:

We face enormously greater economic problems, as I transmit this fifth annual Economic Report, than at any time since the end of World War II. Although our economic strength is now greater than ever before, very large new burdens of long duration are now being imposed upon it.

The United States is pledged and determined, along with other free peoples, to cheek [sic] aggression and to advance freedom. Arrayed against the free world are large and menacing forces. The great manpower under the control of Soviet communism is being driven with fanatic zeal to build up military and industrial strength. We invite disaster if we underestimate the forces working against us.

The economic strength of the free peoples of the world is, however, superior to that of their enemies. If the free nations mobilize and direct their strength properly, they can support whatever military effort may be necessary to avert a general war or to win such a war if it comes. The resources are on our side. The only question is whether they will be used with speed and determination. The answer will depend upon unity of purpose and of action–unity among the free nations, unity here in the United States.

Unity is imperative on the economic front. On this front, under the American system, everybody is involved–every businessman, worker and farmer; every banker and scientist and housewife; every man and woman. We can win our way through to ultimate triumph if we all pull together. Decisive action, essential to our safety, should not be halted by controversy now.

Truman, in his report, explains the implications of a conflict with the Soviet Union of a very long duration:

These manpower needs will call both for increasing our labor force by reducing unemployment and drawing in women and older workers, and for lengthening hours of work in essential industries. These manpower requirements can be met. There will be manpower shortages, but they can be solved.

For those readers whose critical facilities have been dulled by countless hours of exposure to American Idol, what we have here are the words of a craven hustler — a two-bit con artist trying to sell you something you don’t need. Washington is in the business of selling security and its sales methodology is the practice of sowing fear of chaos, terror, and the unspeakable strange unknown. This sales strategy required the creation of an adversary to the “American system”, as well as its domestic avatar buried deep within the populace, to create a pervasive sense of vulnerability and distress among the population. It doesn’t matter that this adversary is Soviet communism or “Islamofascism”, nor that its domestic avatar appear in the form of a devout Muslim citizen or communist trade union activist; what matters is that the threat be, at the same time, pervasive and discrete, universal and particular, potentially life-threatening and merely strange.

This impeccably crafted direct appeal to the collective lizard brain of society, which paralyzes critical thought as our painfully slow brain tries to calculate the odds that the Sikh gentleman sitting in front of us on the bus might be strapped with explosives — renders critical thinking useless, and, therefore, a mere impediment to the apprehension of our empirical circumstances, reduces each of us to a suggestible sheeple, and set us up for acquiescence to the burden of providing Washington with ever greater hours of unpaid labor.

On the one hand, this “service” provided by Washington is very profitable to capital in its own right, since it requires enormous amounts of otherwise unprofitable output in the form of every imaginable thing from paperclips to the most advanced spy satellites, and launchers to put them in orbit. On the other hand, the demand for these products are the very kinds of superfluous expenditures that become increasingly necessary for the continuation of this social form of production.

Once the identity of interest between capital and the State in the longest possible extension of hours of labor is established, it is possible to understand not only Washington’s hostility to work time reduction as the means to end unemployment, but also its imposition of the regime of global competition on the American economy, its facilitation of companies moving industrial facilities and service jobs off-shore, and its hypocritical promotion of amnesty for undocumented immigrants: the capitalist state is a state that must operate according the laws of capital because it is founded entirely on the consumption of the surplus labor created by capital.

It also helps us explain the abandonment of the 99ers to their fate, the impending evisceration of the social safety net and the brutality of the austerity regime now being prepared by Washington. Far from merely falling under the control of Wall Street, Washington itself wants and needs this brutal assault on the living standards of Americans because all other methods of increasing the extraction of surplus value have failed.

What help for the 99ers? (Part two)

December 17, 2010 Leave a comment

In my rant yesterday, What help for the 99ers?, I made an argument why folks who support the 99ers should nevertheless oppose extension of unemployment compensation beyond 99 weeks. That argument made what might be considered an obscure connection between the unemployed and the large body of “public servants” who compose the state machinery of repression, totalitarian control and imperial expansion.

Let me add a few remarks to clarify how I see this connection.

To do this, we have to look at Karl Marx — not the infamous icon of Marxism, but the real guy, the writer and, to some extent, anthropologist of capitalist society — Often the two get conflated, so that, for instance, the utterances of any knucklehead running around with a copy of the Communist Manifesto sometimes is mistaken for the actual words written down on paper by the original person.

In Marx’s model of capitalist society, the unemployed worker is not an accidental occurrence and should not be treated apart from the labor force itself. The unemployed worker is a reserve force available to capital for those periods where new profitable opportunities or requirements for additional labor suddenly open up. The idled worker makes it possible for these new areas to be exploited by providing the additional labor capacity necessary to take advantage of them. This reserve also serves a function of depressing wages during times of depressions, when capital rationalizes its operation to resume profitable expansion by pressing wages below their cyclical average.

Thus, unlike economists, who treat unemployment as an aberration, a defect, or failure of the market, Marx believed a relative surplus population of workers was essential to the functioning of the capitalist system of production itself. The constant expansion and contraction of the labor reserve is consistent with his comprehensive model of capital in which, for example, the price of a good had to fluctuate according to the laws of supply and demand, and only reflected the value of the good through the moving average of these fluctuations. Capitalism is a social system of production carried on by millions of individuals acting privately — unless the system itself had flexibility to adjust to billions of differing and even contradictory decisions each day it would soon break apart.

In times of unusually vigorous expansion, and even for war, the great mass of this population of unemployed would be “called up” (both metaphorically and actually in the case of the military draft) to fill needed positions in industry or on the battlefield. Thus, the “liquidity” of the reserve source of labor power is not simply a matter of business concern, but also a matter of state. So, for example, it is not a surprise to see a statement by White House in the debate over the DREAM Act explaining why the act would be useful for its ongoing military operations:

Secretary of Defense Gates has written to DREAM Act sponsors citing the rich precedent of non-citizens serving in the U.S. military and stating that “the DREAM Act represents an opportunity to expand [the recruiting] pool, to the advantage of military recruiting and readiness.

The size of the reserve labor force is not determined by the means available to expand the scale of productive activity, but to expand activity that creates profit and for purposes of State. But, this purely cyclical movement in unemployment is not of the least concern to us, because it merely masks a longer term trend identified by Marx: the conversion of this reserve labor force from a relative oversupply of labor into an absolute oversupply of labor.

Over time the improvement in the productive capacity of labor — by augmentation with new types of machinery, new methods of organizing work, application of new scientific knowledge, and technology — is increased to such an extent that the relative proportion of workers who can be employed productively shrinks and a permanently unemployable reserve of labor emerges. (Today, this unemployable reserve consists not only of the 99ers, but also a massive hidden population of young people who have never entered the labor force and who, in addition,  compose the largest part of the swollen prison population.) This permanently unemployable reserve — a growing stratum of the labor force rendered entirely superfluous by the advance of industry — loses its opportunity to engage in productive labor and is reduced to serving only as a market for the output of the productively employed labor force.

Along with the emergence of a permanently displaced population of workers we find the emergence of the fascist state — a peculiar type of state organism combining both a permanent war footing with an extensive social safety network of state provided services. Although this state is typically identified with German Nazism and Italian Fascism it is not limited to them, but emerges in all the industrialized nations during the Great Depression, and is the essential feature of Franklin Roosevelt’s New Deal. The social basis of these fascistic entities is the general clamor among all classes in capitalist society for state action to preserve the conditions of existence of the society; namely, the purchase and sale of labor power. It is for this reason the fascist state appears on the scene as the embodiment of the national interest and asserts the populist idea of a national rebirth through a pan-class coalition.

The charge of this state, as imposed by general social demand on it, is to employ the unemployable, and hence, to provide the demand for the output of industry. From this point, political-economy becomes concerned with the problem of consumption of the massive and ever growing output of industry. The fact that the emergence of an absolute oversupply of labor implies the possibility of a drastic reduction in hours of labor for all in society, and, therefore, the awareness of the possibility that society might be entirely freed from labor and the system of domination inherent in the division of labor is, from this point, not only ignored, but actively suppressed. Thus, we see, from the end of World War II, that discussion of the idea improving productivity would lead to the abolition of labor disappears from economic textbooks — to be replaced by the phrase, “the lump of labor fallacy”.

The erasure from economic textbooks of the idea that a reduction and ultimate abolition of labor was the probable outcome of improving productivity foreshadowed last night’s news that the House of Representatives had abandoned the 99ers to their fate. As we showed in the case of the Obama administration, Washington is not merely unaware that unemployment can be wiped out by drastically reducing hours of work, it is hostile to the idea.

Why is Washington ignoring the 99ers, and why is it hostile to the great question of work time reduction? We will answer this in the next post.

The Golden Grimace (Part Nine: Gold, the dollar, and superfluous work)

June 9, 2010 Leave a comment

The price-form, however, is not only compatible with the possibility of a quantitative incongruity between magnitude of value and price, i.e., between the former and its expression in money, but it may also conceal a qualitative inconsistency, so much so, that, although money is nothing but the value-form of commodities, price ceases altogether to express value.

–Karl Marx

The relationship between the two measures of GDP is this:

The debasing of the dollar allowed a quantitative disparity to emerge between the prices of commodities and their values. This divergence of price from value not only emerged in the price of individual commodities, but also in the sum of all the prices of all commodities taken together. Because fiat dollars cannot measure the values of commodities, value no longer determines prices.

At first glance, this might not seem surprising since the value of commodities is something invisible to us – we do not and cannot know the value of anything we buy or sell. The value of a commodity is only expressed over a period of time through the apparently random fluctuations of the price of the commodity. It is something only apparent to us in the movement of these prices.

So what’s the big deal?

The big deal is this:  what was once true for any specific price of a commodity (that any price paid for it might not actually coincide with the value of the commodity) is now absolutely true even for the average of the fluctuations in the price of any specific commodity. And this is also true for all commodities taken together – no commodity’s prices ever reflects its value, and the aggregate prices of all commodities no longer reflect their aggregate value as well.

In other words, the dollar measure of GDP does not, in any way, reflect the value created by economic activity in the U.S. economy.

But, the value of a thing is only the expression of the socially necessary labor time required for its production expressed in some quantity of gold (or, another metal) money. So, to say this another way, in our society the actual work done in the economy is no longer determined by the socially necessary labor time required for the production of commodities. When the quantitative disparity emerged between the prices of commodities and their values, a disparity also emerged between the amount of work we do and the amount of work that was socially necessary to maintain our current standard of living.

Work was now determined by the fiat dollars rushing into the economy.

This absolute quantitative incongruity between price and value has profound implications for our present crisis. The value of a commodity is only a measure of the labor productively employed on it taken as an average of all the individual labor times employed on all the commodities of its type for which society has a need. If more labor is employed in producing the good than is on average necessary, or, if more of the good is produced than is necessary (supply and demand), these disparities would have been signaled by a fall in its price.

This no longer occurs.

The chart below displays the total output of United States GDP from 1929 to 2009 as measured in dollars. As such it measures only the growing total aggregate of dollar transactions – of the exchange of useful things for dollars, and the circulation of these useful things – over time. These use values are not, and cannot be, measured by dollars as values, because, as we have stated, the aggregate measure shows only the dollar demand for the goods and not their socially necessary labor times, neither individually nor as an aggregate.

The chart, therefore, measures the sum of the social labor process – the sum of use values in circulation to satisfy human need – but only insofar as this human need takes the form of money demand. It is a measure of the ever increasing raw productive power of social labor expended on disparate things of great value to us – things like food, houses, schools, medical care for disabled veterans of the genocides in Iraq and Afghanistan, and  research into cancer cure. It also measures destructive things of no value to us whatsoever – cluster bombs, depleted uranium shells and wars in Iraq and Afghanistan.

As a measure of dollar denominated activity, it even includes bizarre things of altogether contradictory value – such as all the economic activity that led to the BP Gulf of Mexico oil disaster AND the dollar cost to clean it up. Both the money spent creating the disaster and the money spent cleaning it up after are registered on the above chart as GDP! Every transaction is represented in aggregate, with no indication as to how much society benefited from it or was impoverished and damaged by it.

This next chart measures that same aggregate output in terms of the dollar price of a billion ounces of gold. This chart does measure the aggregate socially necessary labor of the total social product in circulation over time – the amount of labor actually productively employed over the period.

The chart does not, and cannot be a measurement of the value of the individual use values within this circulation, but only the measure of all of them in aggregate. Even if we knew the dollar price of any object in this aggregate, we could not extrapolate from this dollar price to how much socially necessary labor time it embodies, because the dollar price of the good conveys no information about that labor time. (Remember, Washington can create as much money out of thin air as it needs to purchase anything it wants.) We also cannot know how much time we actually spent at work when this value was produced, because there is no definite relationship between the amount of work we do and the value we produce.

Gold can only measure the amount of work we HAD to do to produce the value; and, the dollar only measures the amount of work we actually did. When the dollar was on the gold standard these two measures were one and the same. But, now that this relationship is broken we have to perform an extra step: Only by dividing the annual dollar denominated GDP by the price of an ounce of gold for that year can we arrive at some idea of how much of the work we were doing was actually necessary.

The two charts above begin in 1929, before the dollar was debased from gold and are presented in absolute values. However, if we convert them to percentages, using 1929 as the base year, we can align them to see what happened when the dollar was debased. As you can see from the chart below, there is a fairly sharp divergence between the two measures of GDP after the dollar was debased by gold in 1933. This period is shown in the chart below.

US GDP (1929-1939) in gold (yellow) and dollars (green) as a percentage of 1929 levels

The chart shows the sudden sharp divergence of the prices of transactions in the US economy as measured in dollars (the green area) from these same transactions as recorded in the price of billions of ounces of gold (the yellow area). The dollar was not simply debased from gold, it was also devalued against gold – reduced from $20.67 per ounce to $35 per ounce. This was an overnight 41 percent reduction in the value of the wages of working families – a brutal material assault on their standard of living carried out by that puppet of Wall Street, President Franklin Delano Roosevelt.

The fact that Roosevelt went on to be reelected three times after this monstrous economic calamity – and, to this day, enjoys almost universal adoration – does not, in any way, change this material fact. Recovery from the depression began only after Washington engineered a massive collapse in the real wages of working people.

This assault was, simultaneously, a sharp divergence of the actual labor time of working people from the socially necessary labor time required for the production of commodities. In every year after the debasement of the dollar, actual labor time exceeded its socially necessary requirement by 40 percent – meaning the country was increasingly awash not only in worthless dollars, but also a superfluity of work – unnecessary, superfluous labor that was the material precondition for the military buildup leading to the catastrophe of World War II.

The two measures of GDP, therefore, record the emergence of labor in its purely superfluous form – in the form of labor that neither results in any increase in the material wealth of society, nor in the means to create that material wealth.

If we extend this chart to 1980, we can see that this newly emerged superfluous labor expands even further to absorb a greater portion of actual labor time:

US GDP (1929-1980) in gold (yellow) and dollars (green) as a percentage of 1929 levels

Superfluous labor expanded dramatically between World War II and 1970 – growing from 40 percent of all work performed to more than 50 percent of all work performed. However, the Great Stagflation of the 1970s imposed such an unimaginably harsh reduction on the living standards of working families that by 1980 superfluous labor expanded to include more than 95 percent of all work performed. No more than five percent of the work day was necessary!


Let us repeat that, because you obviously did not hear what we said:


US GDP in gold (yellow) and dollars (green) as a percentage of 1929 levels

In the ten years since 2000, even this insignificant level of necessary work was cut in half – dropping to no more than 2 percent of all work performed. At the same time, economic activity, as measured in dollars, exploded in bubble after bubble, These bubbles were no more than the desperate actions of Washington and the gang of sociopaths residing on Wall Street trying desperately to maintain some semblance of economic activity through an explosion of debt,  financial instruments, and every sort of sordid Ponzi scheme to maintain their grip on the social power they wield over you, and which is embodied in your own self-enslavement to them.

Below, we show the divergence between the labor process measured in dollars, and that same labor process measured by socially necessary labor time, as the percentage of the total labor day embodying socially necessary labor time. This is the actual percentage of the present labor day required to satisfy human need.

Based on what we have presented here in this series, that chart indicates that no more than 2-3 percent of the current labor day is required to satisfy the total needs of society.

It also indicates that if the self-expansion of capital falters, for whatever reason, as now seems to be happening , economic activity will disappear in a massive catastrophic implosion.

Work is dead, folks. You’re all gonna have to get a life!

The is an old skool collection from some guy who sets up a hidden cam and captures his antics with a series of anonymous women in his home and at the office. For the most part, the faces are deliberately obscured, and his face is never shown. The guy initially sold the tapes, but also posted them in short clips on the usenet around 2000-2002.

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

Don’t count on a replay of the Great Depression…

September 9, 2009 Leave a comment

We are trying to figure out what of the criticism we leveled at Paul Krugman is relevant, and what is not.

Krugman’s article raised two important points:

  1. Schumpeter was not some flat earther who believed in a stable, steady state theory of capitalist markets. He believed, based on what I have read of his works – a tiny. perhaps, unrepresentative fraction – both that markets were prone to sudden and even violent dislocations, and had a definite trajectory toward ultimate collapse. The former, at least, driven by technological change. Perhaps the latter as well. He also seemed to believe these two tendencies were not exceptional cases, needing to be explained or accounted for separately from a description of how capitalism worked, but had to be accounted for in the description of the capitalist market itself. The fact that even the most rudimentary examination of his work reveals how different his ideas were from how he is presented by Krugman is telling.
  2. The same conclusion applies to how Krugman treats Lord John Maynard Keynes. I have not been a fan of his, and only came to understand his work based on tutoring by Tom Walker. I had absorbed much of what I knew of his theories from reading the post-war American interpretation. That interpretation, which, apparently, Krugman has swallowed whole cloth, calls for government intervention to stabilize the economy through fiscal and monetary policy tools. It completely neglects Keynes’ comments that shorter working time is the long term solution to the problems arising from the depression. However, it is one thing for me to fall victim to this misunderstanding, it is quite another for Krugman – who fancies himself as a follower of Keynes – to spout the same one-sided interpretation.


schumpeterSchumpeter’s main criticism of the steps taken by the Federal Reserve and the Roosevelt administration during the Great Depression was simple: the Great Depression, however, difficult, was a necessary adjustment to the changes which had taken place in the economy over several decades – changes which had virtually transformed the economic landscape, and increased the productive power of labor beyond anything imagined up until that time.

To cope with those changes, a number of measure had been taken, some of which were necessary – relief for the unemployed – some of which only served to intensify the crisis – protectionism, the replacement of gold by fiat money, and the imposition on Germany of the costs of World War I – some of which were called for, but vulnerable to charges they undermined economic activity – the Glass-Steagall Act (which ultimately was undone by the Clinton administration) comes to mind.

And then there were those measures specifically designed to prevent the economy from adjusting to the new economic reality of less work: the Keynes inspired government intervention, using its fiscal and monetary powers to promote an inflationary expansion of the working time.

Tom Walker has pointed out recently that, based on the available evidence, at least one author of the history of working time, Benjamin K. Hunnicutt, believed the Roosevelt administration undertook the latter set of policies specifically to avoid reducing the work week as proposed by the Black-Connery 30 hours legislation:

It is true that Ben Hunnicutt doesn’t see the New Deal programs as a conspiracy. What he does say, though, is that the only real coherence to the programs was the intent to defeat the Black Bill. Or, to soften that somewhat he attributes the view to a few of his sources (Keyserling and Connery) without directly disputing it. Whether or not one calls an intentional program a conspiracy depends, technically speaking, on its legality and secrecy.

“In a letter to Arthur Schlesinger dated April 9, 1958, Leon Keyserling stressed that Roosevelt came to Washington without a “systematic economic program.” The “highly experimental, improvised and inconsistent” programs of the first New Deal defy categorization. They were the products of “schools of reformers” that had been promoting diverse programs that Roosevelt, higgledy-piggledy, picked up.

“According to Keyserling, the PWA, CWA, NIRA, and the rest were not parts of any systematic plan or overall purpose. The only coherence given these events came from outside the administration. It was the “desire to get rid of the Black bill” that prompted the administration to draw up such things as the NRA, “to put in something to satisfy labor.” This same point was made by other notables in Roosevelt’s administration, among them Raymond Moley.

“Throughout the depression, 30-hour legislation goaded Roosevelt to action. The Black-Connery bill, introduced in each depression Congress until passed in highly modified form as the Fair Labor Standards Act [FLSA] in 1938, with all the work-sharing teeth pulled, continued to function as a sort of reverse polestar, enabling Roosevelt to chart his course by the simple expedient of sailing in the opposite direction.

Roosevelt’s instinctive reaction against 30 hours matured to positive approaches to industrial stabilization and reemployment. They were built on work creation, not work spreading, founded on industrial growth and increased spending as the wellsprings of progress. In the process, he and his administration discarded the century-old notion that work reduction had the potential for social and individual advancement.

“From the point of view of someone like Representative William Connery, who pushed for 30 hours from 1932 to 1937, the New Deal had a coherence, a reason for happening when and as it did, that was lost on others not so positioned. From Connery’s perspective, the New Deal was what it was because of its opposition to 30 hours. — Hunnicutt, Work Without End, pp.248-49″

The relevance of Schumpeter’s observation to the present crisis is compelling. If he is correct, what we are witnessing is not simply a replay of the Great Depression, but of the Great Depression PLUS all the accumulated changes to global economy which have taken place since that time.

But to this balance of adjustment which must be accounted for in this crisis, we should add all the imbalances that have built up over that time, and, which resulted from seven decades of government intervention to forestall the adjustment to all the economic changes over that entire period.

Says Schumpeter:

For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another crisis ahead. Particularly our story provides a presumption against remedial measures which work through money and credit. For the trouble in fundamentally not with money and credit, and policies of this class are particularly apt to keep up, and add to, maladjustment, and to produce additional trouble in the future.


john-maynard-keynesBy contrast Keynes believed there was a role for just the kind of monetary and fiscal intervention that Schumpeter wanted to avoid.

The problem, from Krugman’s perspective, is that he saw this as a strictly limited intervention, with clear limited aim, and further limited in duration.

The blog, Econospeak, has reproduced his ideas on this in full, of which we excerpt the relevant portion:

4. After the war there are likely to ensure [sic] three phases-
(i) when the inducement to invest is likely to lead, if unchecked, to a volume of investment greater than the indicated level of savings in the absence of rationing and other controls;
(ii) when the urgently necessary investment is no longer greater than the indicated level of savings in conditions of freedom, but it still capable of being adjusted to the indicated level by deliberately encouraging or expediting less urgent, but nevertheless useful, investment;
(iii) when investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises.

In Keynes’ view, in other words, following World War II there would be a period of rationing while the economy recovered; a period where economic policy would be to encourage some additional investment to bring the economy up to its potential; and a period where, in his words, It becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours.”

Keynes estimated that it would take some 10 to fifteen years after the war ended to get to the point where working time would have to be reduced in order to discourage saving and prevent unnecessary and wasteful over-investment – what we would call a bubble today.

The war ended in 1945, which would have put the ideal time to begin reducing hours of work at around 1960 at the latest.

If we double Keynes’ off the cuff estimate, just to be conservative – to thirty years, rather than fifteen – we are in the middle of the stagflation of the 1970s, which brought about the collapse of the Keynesian Revolution in economics.


It is impossible to say with precision how this insanity will unfolds over the next period, but we believe any comparison to the Great Depression completely underestimates the degree of adjustment that must impose itself on the global economy to account for unfinished adjustments of the Great Depression, the accumulated changes since then, and the perversities introduced into what Schumpeter called the economic organism in the seven decades since World War II, which have resulted in one after another bubble.

This triple threat is now aimed at the survival of millions of working families in this country, and billions more beyond.

The management of this crisis is now in the hands of the very men and women who failed so miserably to avoid it. It really is not clear that it can be managed even in the best of circumstances, but it is obvious that the first step in that process is to remove those who made it inevitable by prolonging the very policies that made it inevitable – this is now a political catastrophe.

“We’re all in this together…” (And, other such nonsense)

June 12, 2008 Leave a comment

We need to deliver on the big issues like providing affordable health care for everyone. We must massively redirect resources into alternative sources of energy and end our bondage to the oil companies. Like Roosevelt we have to rebuild the public economic and transportation infrastructure that the Republicans have allowed to crumble. We need to reintroduce fairness into the tax code and reform labor laws so that workers can once again organize to defend middle-class incomes. And of course we have to end the War in Iraq and re-establish a foreign policy that can really make us safer by creating a peaceful, prosperous world. Huffington Post

Just when you thought this was an election about change, it becomes clear the supporters of the Democratic Party’s government-in-waiting have other plans.

Sure, it is possible the Moron’s endless war, which has, so far, taken 1.2 million American and Iraqis lives (No, you read that right: 1,200,000 lives, not 4000) could be brought to some sort of messy end by Barack Obama, but we still have to ask after that what’s next?

Well, one of the Bobs over at the Huffington Post has a great idea: Once, progressives get hold of the machinery of government – with its Treasury Department printing presses, and it unchallengeable power to tax the population into poverty – they should go on a spending spree, the likes of which has not been seen since – what?…oh yeah – since the Moron decided to splurge 2.3 trillion dollars killing Afghanis and Iraqis, and another trillion in a big fat tax cuts for the wealthiest one percent of taxpayers.

Whenever a spin doctor announces, “we’re all in this together,” he or she is clearly banking on you ignoring the history of this republic over the last sixty years.

He or she is appealing to your group self, not to you in your actual circumstances; not to your mortgage, which must be paid each month; your table, which must be set with food for your chilldren each evening; your credit card bills, which accumulate in your mailbox each day.

In short, he or she is not concerned with anything that makes you an individual, with individual concerns, and individual purpose.

His or her only concern is your abstract self, Alienated Self, the self you give over to him or her, not out of some noble sense of civic duty, but as a slave incapable of establishing independent of government the basic conditions necessary for your survival – and, not directly, but because you are a slave – hired by the day, week, or year – owning, in every sense of the word, yourself, but compelled to sell everything important to you as a human being to some fatcat who just needs a little bit more to add to his billions. (Hey, its hard work staying on the Forbes’ billionaire list.)

Certainly, we need health care, lower oil prices, and, decent roads and bridges. We also need labor laws that improve working conditions and protect income. And, we definitely need a foreign policy that creates a peaceful, prosperous world.

The question to you is simple: why does this take 32 percent of annual GDP – 32 percent (directly and indirectly) of your income?

What company management would be able to argue to their shareholders that management costs of more than 30 percent is normal? Necessary. Even something to brag about.

We are going to return to this issue.