The stock market and government spending
These are difficult times for the “investor” class. Interest rates are at all time lows and the stock markets are flat to declining. US stocks are at the same level as in the late 90’s while in Japan they’ve been declining for a couple decades. I think things can only get worse and have to agree with James Mackintosh in today’s FT that “there is no reason to think (US stocks) will regain (previous inflation adjusted peaks) for decades – if ever”.
Stock market values of course depend ultimately on profits and profits depend on either ever rising private investment, ever rising private debt, or government spending. This arises from the simple observation that profits, being the excess of price over the wage, must arise from a source other than the wage. Except for speculative bubbles in real estate and a few high tech industries, there’s been very little real private investment for decades. And of course the rising private debt that sustained the system since the 80’s can no longer be counted on. It seems therefore almost certain that profits and stock market values are dependent on a rise in government spending. This isn’t rocket science and we must assume the key actors in the world today – the top government officials and the heads of the major corporations – fully understand this. No doubt the UBS senior economic advisor quoted yesterday gives us an inkling of the elite consensus:
It is a crisis of capitalism because our economic model and policy settings cannot produce sustainable growth, adequate income formation or employment creation….The capacity to produce and sell goods and services has outstripped that of consumers to borrow and spend.
The key dilemma for the elites, then, becomes one of how to expand government spending without risking an expansion of democracy that could very easily lead to something like old time European social democracy, or worse. The choices seem stark: constricted government spending, ongoing crisis, depression, and declining profits; OR increased government intervention, a high risk of social democracy, and a likely decline in both profits and power; OR increased government spending along with a greatly conscribed democracy (neo-fascism), and an unknown affect on profits.
All have great risk but I think it’s becoming increasingly obvious that the profit system, like the gold standard of the past, is incompatible with democracy. It’s a crisis of capitalism that’s fully inter-tangled with a crisis of democracy.