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Joe Biden tours a middle class Colombian flower farm

It’s truly inspiring to witness the historic flowering of the global middle class and I think it’s way past time we all stand up and thank the wise political leadership in the European Union, the United States, and throughout the world for their fine dedicated efforts.  These experts, educated through years of advanced study, have learned the essential formula for creating a prosperous middle class world and we are the beneficiaries.  And here it is, the end result of centuries of human thought, the brilliant formula for middle class prosperity:

Unrestricted free trade, low taxes, free capital mobility, competitively low wages, balanced budgets, repressed unions, police discipline, high interest rates, strong business confidence, strictly enforced property rights, and a limited constitutional democracy under the ‘rule of law’.

The great fruits of this formula are, of course, self evident in the “developed” world as throngs everywhere are gathering on the streets to celebrate the gleaming 21st century utopian world.  What’s even more exciting is the phenomenal achievement in Latin America!  To mark this beautiful spring awakening for the Latino middle class, Joe Biden recently made a triumphant visit to that true bastion of Latin American middle-classdom, Colombia, and toured one of the great middle class industries of our new 21st century, the flower farm.

Colombia has long practiced the middle class formula and is rightly seen as a noble role model.  It maintains a competitive wage structure through its innovative high poverty program which consistently secures poverty rates well above 30%.  It has free trade agreements with the US, has high interest rates, currently a whopping 3.25%, and its investors are surely bursting with confidence, having achieved a remarkably high gini coefficient of .548.  Perhaps Colombia’s most effective competitive advantage is its truly ground-breaking policy on unions, which, through the efficient murdering of union leaders, has kept union enrollment to less than 4%!

Biden was so impressed with his visit, he even wrote an article in the Wall Street Journal about it, entitled “Joe Biden – The Americas Ascendant: The Spread of Free Trade and Democracy has been a Boom to the Hemisphere”.  “What I saw on the flower farm”, he gushed, “was just one sign of the economic blossoming in the year since a U.S. free-trade agreement with Colombia went into force.”… “Today, I believe we can credibly envision an Americas that is solidly middle-class, secure and democratic”.

Joe’s right, the flower farming industry in Colombia is truly inspiring, being one of the world leaders in maximizing profitability through the clever strategy of paying employees a wage of less than $2 per day.  Equally helpful is the hands off regulatory environment which permits high output, an obvious key to maintaining middle class standards, without getting bogged down in petty grievances like the silly fact that two-thirds of the flower workers suffer sickness from pesticide exposure.

Because flower farming is such a critical industry for the 21st century middle class, Biden even produced a two minute video of his tour.  Be sure to watch it as it’s quite exciting.

Walking through the farm amidst the clearly happy $2 per day middle class workers, he just can’t help but marvel at “the progress in the decent good paying jobs”.  “We see a future for not just Colombia but for the hemisphere, all of us of middle class societies that are in fact democracies like Colombia that are growing and prosperous; and that’s the future and that’s not been anything more than a dream for the last century.  In this next decade or so we can make tremendous progress”.

It’s really so exciting.  Thank you Joe Biden and Barack Obama!  And the other deserving leaders throughout the world!

Democratic Capitalism or Capitalist Democracy

Prior to the 16th century, most of Christendom fervently believed the Earth was the center of the Solar System and that the Sun revolved around it.  It became obvious to the Renaissance scientists and pretty much all future observers (American Creationists excluded) that the empirical facts didn’t give much support to the geocentric view and it was far simpler to think of the Sun as the center around which orbited the Earth.  The Theory of Relativity tells us, though, that there’s no such thing as absolute motion and so any object in the universe can make equal claim to being considered the stationary center.  It’s therefore not empirically proven that the Earth does in fact orbit the Sun; it’s just vastly simpler and in accordance with all our physical theories to view it that way.

We see something similar, I think, in the realm of political economy.  Does Democracy revolve around Money or is it vice versa?  Which has the better claim to being the stationary center?  Is our system better considered Democratic Capitalism or Capitalist Democracy (with the second word having the implied greater importance)?

I won’t try to untangle that question here but I think it’s interesting to see how the framing of the current crisis helps in arriving at an answer.  Writing about Europe today, Financial Times columnist Philip Stephens gives us a typical example (paywall) of the orthodox perspective.

“Put a bunch of European leaders in a room and it is a fair bet that the conversation turns to the rise of populist parties across the continent.  A year or so ago, the same politicians would have been obsessed with the markets’ threat to the euro.  Now they worry about whether European democracy can survive the shock of saving the single currency.”

We have massive unemployment and suffering throughout Europe and elsewhere and the system is highly unpopular.  It’s a crisis for sure, but what type?  Is it a crisis of the socio-economic system that’s enforcing this misery, i.e. Capitalism?  Or is it a crisis of the people’s supposed sovereign right to change it, i.e. Democracy?

Except for a brief instant at the very beginning of the crisis when it appeared the entire financial system was about to go supernovae, we hardly ever see the crisis reported as one of capitalism.  It’s almost universally framed as a crisis of democracy.  I think that’s pretty interesting.

The standard framing of articles like Stephens’s should leave us in no doubt that the most basic socio-economic theory of our human universe, as concocted by those in true power, firmly places Democracy in orbit around that brightest and most glorious of stars, Money.  We know this to be true because if Democracy were truly considered the center, then we’d be told we’re living in a crisis of Capitalism.  And the very idea of that; that Democracy could really truly be at the center of it all is, to our elites, laughable, “populist” lunacy; as ridiculously absurd as that old silly dogma of the medieval geocentrists.

Scandinavians: a bunch of cuddly free riders

The New York Times  presents us today with some friendly coverage of a recent paper written by  Daron Acemoglu, economist at MIT, James Robinson of the Harvard Department of Government, and Thierry Vierdier, economist at the Paris School of Economics.  The paper, “Can’t we all be Scandinavians?”, is one of the more outlandish propaganda pieces I’ve seen of late, and the fact that such nonsense can be produced in such prestigious universities and further broadcast to the wider world via the “paper of record”, is just one more reminder of the great institutional power of neoliberal capitalism.

The essential argument is that global technological progress requires at least one country, currently the United States, have a “cutthroat” socio-economic system of very lucrative rewards for entrepreneurs coupled with high poverty, inequality, and few social benefits for the average worker.   

Without pointing to any developed theory of human motivation or the actual history of inventions and discoveries, the authors grandly assert that technological innovations require a “cutthroat reward structure with high-powered incentives for success” which “implies greater inequality and greater poverty (and a weaker safety net)”.  In short, progress can only be achieved through greed.

It’s the “cutthroat American society that makes possible the more cuddly Scandinavian societies”.  The richer developed world is living off of the “technology frontier” enabled and advanced through the cutthroat reward system of the Americans.  Those with more equal societies are parasites who “free-ride on this frontier economy and choose a more egalitarian, cuddly, reward structure”.  

We can’t all be Scandinavians they conclude because the world’s growth rate would decline without at least one country structured around cutthroat incentives.  “(O)ne may claim (with all the usual caveats of course) that the more harmonious and egalitarian Scandinavian societies are made possible because they are able to benefit from and free ride on the knowledge externalities created by the cutthroat American equilibrium.”

Progress and prosperity require poverty and inequality.  This has been the elite religion since the very beginnings of human civilization; there’s absolutely nothing original here.  What’s a bit more recent though, is the couple hundred year history of trying to couple the defense of aristocracy with the allure and prestige of science.  The authors, with the weighty institutional credentials of MIT, Harvard, and the Paris School of Economics, and with an absurd use of advanced mathematics, outlandishly expect the public to accept their piece of silly, simplistic propaganda as a hard scientific theory.   In a just world, they’d receive a prompt cutthroat firing for writing such trash.

The disgrace of the “Keynesian left” alternative

The oligarchy surely has no better friend than Paul Krugman, today’s intellectual leader of an ever so slightly moderated version of neo-liberalism that’s neatly packaged to the public as the “Keynesian left” alternative.  Forget that there’s no resemblance to the views of the real John Maynard Keynes, himself no radical, or that the sole claim of expertise is rooted in an utterly disgraced profession, Krugman has nevertheless been anointed the critical role of sowing hope for alternatives while remaining firmly bounded within a socio-economic system in which there can be none.  Ignoring the rhetoric, we find nothing truly antagonistic to Thatcher’s TINA.

This is the disgrace and hypocrisy of the so called “center-left”, an outrageously false designation given how very far it is from any reasonable notion of that true moral center we find rooted in almost all philosophical and religious traditions.  We need look no further than the recent speeches of Pope Francis, who has offered views on our socio-economic system that are truly central in the moral sense and, needless to say, far to the left of today’s so-called “Keynesian center-leftists”,

Let’s look at Krugman today in a post entitled “Europe’s Keynesian Problem”.  “Everyone with a bit of sense”, he informs us, knows the central problem in Europe.  It has nothing to do with extreme inequality or the fact that just a handful of oligopolistic firms and banks control virtually the entire economic structure; no, it’s a far simpler case of accounting valuations.  “(T)here was a sharp rise in relative costs and prices in the periphery during the boom years, and the process of correcting that overvaluation through “internal devaluation” is extremely difficult and painful.”  The Krugmanian / “Keynesian” solution is for nothing beyond continued austerity in the “periphery” albeit not as extreme as today.  Direct action to advance prosperity is simply not in the cards.  “(N)obody is suggesting stimulus for, say, Portugal”, he asserts, bearing his neo-liberal teeth.  Portugal has an unemployment rate of 17.5%, and an average wage half that of Germany coupled with longer work hours; yet while the so called “private sector” can’t come close to providing anywhere near the living standards our productive capacity clearly permits, Krugman cannot bring himself to support “stimulus”.

And what of the term “peripheral”, used here and throughout the neo-liberal world as if it were a basic, morally unobjectionable feature of nature?  Should not any system of thought which accepts the notion that a group of people can be “peripheral”, i.e. not central, be branded as sitting on the extreme outer periphery of any true moral center?

Krugman then regurgitates a 21st century version of “trickle down”: “on any kind of rational pan-European basis, we should be seeing austerity in the periphery at least partly offset by stimulus in the core.”  This is Krugman’s central dogma for Europe: austerity for the periphery, although less than today, coupled with inflationary spending in Germany.  German spending will then trickle down to the peripheral Portuguese through the magic of the market. Yes, and we see the same market magic trickling between the United States and Mexico, do we not?  The answer to the problems of the Mexicans then should be little more than a bit of stimulus in America!  I wrote a post the other day on Krugman and Mexico, in fact, and his views are rooted in the same pitiful neo-liberalism as his ideas for Europe.  Mexico, to Krugman, merely needs better child nutrition and education and should then wait a few decades for the medicine to work.  TINA personified!

Our center-left intellectuals, almost all “economists”, are truly a disgrace.  And it’s demonstrated almost daily.  We need look no further today than Brad DeLong, who Krugman refers to in his post.  It’s the standard left neo-liberalism that requires no further comment.  What’s notable is that DeLong admits (correctly) of his own intellectual impotence, concluding that the disgraced right wing economist Kenneth Rogoff “is one of those people whose judgment is significantly more likely than not to be better than my own.”

It’s all one big joke, right?

The immoral orthodoxy of the trade deficit

Few orthodoxies are more harmful, I think, than the very old Ricardian principle enforcing a trade balance.  The essential idea is that the market mechanism will automatically bring trade between countries into balance through the appreciation of the currency of the surplus nation and a corresponding depreciation of the deficit one.  The ability to import or export will then be “naturally” checked, leaving the two nations in a roughly balanced position which for some odd reason is considered inherently good.

But why, in a world of specialized mass production, is balanced trade considered desirable?  A great many people in poorer nations remain stuck in substandard living conditions because of the inability to import advanced goods while, at the very same time, the very workers producing them in the more technologically advanced countries suffer from high un/under employment.  The prime mission, in fact, of governments and businesses throughout the world is to increase exports, yet we have an army of accountants enforcing the harshest of penalties on nations whose imports happen to be higher than their exports.

Paul Krugman, like all mainstream economists, kneels in reverence to this warped accounting logic and we see it today in his support for the idea that wages in Portugal are too high versus Germany and that the way out of the crisis for the European “peripheral” countries is through the devaluation of their wages against Germany via a wage boost in Germany.  The goal is to reduce the ability of Portugal and the “peripherals” to import from both Germany and the rest of the world by reducing their relative wages and through a likely decline in the value of the euro versus the dollar and other currencies as German wages rise.  But wait!  Portugal is already a poor society having an average wage less than half that of the Germans coupled with much longer working hours.  Krugman’s orthodoxy will only worsen living standards by forcing an increase in the cost of imports and a reorientation of the economy toward exports.  This, despite the fact that the entire German economy is centered around mass production for export, the German worker is highly efficient at it, and he/she wishes nothing more than to maintain his/her employment doing precisely that.

One obvious objection would be that it’s unfair and unreasonable to expect the Germans to forever export to deficit countries without getting something in return.  But that logic doesn’t apply to the average German worker who would be unemployed without the exports.  We must remember it’s not the German worker who’s exporting; it’s the German based multinational firm.  And if a re-alignment of the entire economy away from exports is actually desired, then why not bring in workers from the importing countries or outsource there to cover the difference?  Regardless, what strange logic indeed that we should seek to cut German production and enforce substandard conditions on “peripheral” nations against the wishes of the German worker, all for the sake of maintaining an accounting balance.

The short term moral solution is to develop an international currency that would permit unrestricted imports with the goal being to guarantee expanded sustainable prosperity for all.  How value-less and fundamentally immoral it is to proclaim that a poor country’s living standards are too high and a rich country’s too low!  As with so much of the capitalist system, it’s way past time we move past the hugely harmful finance-based notions of balance.

“Recession” is an Orwellian term

The European Union’s statistical agency reported yesterday that the eurozone continues in “recession” for the sixth consecutive quarter and it’s top news throughout the mainstream and business press.  That so many on the continent live increasingly insecure lives and that the officially measured unemployment rate has reached a stratospheric 12.1% is, of course, horrible news.  But what importance should the average person place on the fact of “recession”?  I think absolutely none, for the word has become an Orwellian term that serves to shift our focus away from reality and toward “solutions” that are in fact the problem.  War is Peace, Freedom is Slavery, Ignorance is Strength, and now, Growth is Austerity and Competition. 

“Recession”, in official use, means that the total monetary value of goods and services sold in a period has declined.  It tells us nothing about what types of goods and services these may have been or what group or class may have suffered as a result.  But this is critical information we need to know in order to judge the significance of “recession”.  What’s important to the vast majority is the widespread availability of such critical goods and services as housing, healthcare, quality food, decent clothes, leisure time for friends and family, clean environment, security, retirement, and so on.  The only important meaning of “recession”, one would think, would be a decline in the availability of these truly important things.  And it’s perfectly reasonable to think that, with our amazing level of productive capacity, we should have long ago conquered “recessions” so defined.

The sad and incredible fact of the matter, though, is that we have lived in a recession of the important kind for quite some time.  Real wages have been down throughout Europe and the “developed” world for decades now, as has been the various collective benefits of education, retirement, health care, income security, and so on.  We find everywhere that worker shares of what’s produced are at record lows.

The full power of the orthodox meaning of “recession” is exposed when we hear the orthodox solutions.  The straightforward honest solution would logically be to simply devote more resources and technology toward the things we want.  But not so in our Orwellian universe – we find in fact the exact opposite!  The solution to the problem of reduced living standards is to reduce them even more!  The solution to recession is recession.

The story that’s told in support of this fantastical idea is necessarily nonsensical for the goal is the maintenance of power, not the improvement of general living standards.  The central character in the tale is “competition”, an interesting fiction given our world of oligopoly.  Competition doesn’t apply to oligopolistic firms though; it applies solely to workers and nations and requires of them an unending downward spiral in wages and collective welfare.  It’s the very nature of the capitalist system and, as European Commission head Barroso told French President Hollande yesterday, “To be against globalization is like spitting in the wind”.  Now spitting in the wind is never a very wise idea, but isn’t it an incredible feature of our world that the wind always seems to blow towards the general population?  And that supposedly democratically elected leaders are so ready, willing, and able to spit on them?

So the downward spiral of true recession continues with no end in sight.  Hollande, not one to spit in the wind, continues on the recessionary path with no helpful ideas in sight, proposing just today to increase the retirement age.  “People live longer, they should work longer”, he says.  While this may on its surface seem reasonable, it neglects our vast growth in productivity and technology, the reality of huge numbers of unemployed people both in France and globally that could be brought online, and the huge misallocation of resources towards purposes having no bearing on general well being.  We see this very well reflected in OECD statistics.   While life expectancy in France has risen 6.2% since 1990, labor productivity has climbed 35.9%, offset by a 10.2% decline in average hours worked.  These improvements in overall productive output, though, aren’t being shared as median household income growth has been just 52.9% of per capita GDP growth during this period.  To even suggest that living standards should decline in the face of these facts is truly outrageous.

The world’s population has been in a real recession for decades and the mainstream economists and politicians tell us the answer to recession is nothing but more recession.  The real solution, however, is quite straightforward; we simply need to assure that sufficient resources for the quality things we want are always employed.  A recession in luxury yachts, mansions, or military spending is fully acceptable, even desirable.  But a recession in general prosperity is not.  By getting specific about the meaning of recession, we can more easily differentiate between real and phony solutions and begin to see the gaping chasm that exists between capitalism and true prosperity.

Roger Altman reminds us we don’t live in a democracy

Wall Street financier and former Clinton Treasury official Roger Altman steps forth today to yet again inform us that we’re ruled by the bond market and not democratically elected leaders.  Few with a reasonably sound grasp of events would disagree with his assessment, but it’s always grating hearing it from one who so clearly glories in it all.  He penned a similar article a year and a half ago in which he praisingly identified the “markets” as the second most powerful force on earth behind nuclear weapons.  I was motivated then to write a post comparing this adulation of power to that of Wagner’s gods as they entered Valhalla in Das Rheingold.

In the current article, he now tells us quite rightly that “It was not Angela Merkel, chancellor of Germany, or other political leaders who pushed austerity on to Italy, Spain, Greece and others”, “it was private lenders”.  “Markets triggered the Eurozone crisis, not politicians” and “21st century markets are much more powerful than any government leader”.

The terms he uses here, “private lenders” and especially “markets” need to be quickly branded as mere euphemisms, though, for the harsh underlying reality that hovers over us.  National governments are mere small town functionaries compared to this larger force; real power isn’t in their hands, and it’s not in the hands of a neutered faceless invisible creature of implied fairness called “markets”.  True power rests with an extraordinarily tiny gang having immense power assembled through their tight grip on corporate ownership, wealth, and banking.  In short, they rule by the concentrated ownership of money.  The traditional term for this form of rule, going all the way back to Aristotle, is oligarchy.

Altman is telling us nothing less than that we don’t have agency over our lives, that we don’t live in democracies, and that we live instead under the tyrannical rule of an oligarchy, albeit he understandably prefers the term “markets”.  It’s not necessarily too smart for the oligarchs and assorted mercenaries to emphasize this hard political fact as it risks waking up a confused and dozing population who still tend to see their real rulers as elected through some type of however imperfect democratic process.

Altman’s a bit too confident for his own good it seems; he’s dazzled by the radiance of his gods, and assumes way too easily that the “political” can forever be safely segregated from material well being, i.e. the “economic” and that “markets” will always be identified with the fairness of, say, the local farmer’s market.  He tells us that “History is not likely to view these austerity trends in political or moral terms.  Rather, the context will probably be a financial one”.  As if overruling popularly elected governments and forcing hundreds of millions into destitution isn’t the very purest example of what politics and morality actually are; and as if “finance” somehow exists in some strange dimension of the universe completely disconnected from politics and morality.

The immoral, fully political system for which Altman speaks is a brutal tyranny that will begin its final collapse when majorities start realizing its true nature; when they stop blaming the Merkels of the world and see the oligarchy for what it truly is.  We should thank Altman for aiding in this great educational process.

Professor Krugman goes to Mexico

Poor Mexico, so far from God and so close to the United States!  Or to paraphrase this well known quote: So far from social justice and so dominated by neoliberalism.  Either way, the fundamental cause of the misery, poverty, and insecurity in Mexico should seem clear to even the most casual observer – it’s not a lack of natural resources or the ability of the nation to provide for itself agriculturally, Mexico is fundamentally rich; the core problem, plain and simple, is inequality.

Mexico is one of the most unequal nations on earth, second only to Chile in all of Latin America.  The OECD reports that the top 10% grab a massive 36% of total income while the bottom 10% somehow subsist on but 1.3%.  The wealthiest tycoon on the planet, Carlos Slim, is Mexican and his estimated net worth is $78,000,000,000, 16.6 million times the median household income of $4,689.  The Mexican agency CONEVAL  reports that 46.2% of the population is poor, and an additional 34.7% is vulnerable due to either social deprivation or low income.  Only one in five Mexicans, they show, has enough income to satisfy basic needs and live without social deprivation.

The elites of this feudal system have no modesty in the degree of their parasitic extractions and the Bank of Mexico plays its part by maintaining an extraordinarily high rate of interest for a nation on a fiat currency.  The current short term riskless benchmark rate is a whopping 4%, a transfer of purchasing power to the most powerful of $40,000 per million of wealth, 8.5 times the median income.

While unreported in the American press, I noted today that our very own Paul Krugman visited Mexico the other day and delivered an address to the annual convention of the Aseguradores (insurers) de México in Mexico City.  He was one of the three headline speakers, along with, get this, Spain’s former right wing president José Maria Aznar and Rudolph Giuliani.

So, what did the world’s premier conscience of a liberal tell this illustrious, socially undeprived audience about their country?

Well, here’s a few excerpts on Krugman’s presentation via the Mexican paper La Jornada (translated from Spanish here and here).  No hint of the inequality problem for this well heeled audience, everything’s essentially ok in fact, let’s wait a few decades and see if better education and a bit of child nutrition bear fruit.

Mexico seems to be a happy story in the context of the international economic crisis.  Everything functions very well except the rate of growth, which doesn’t correspond to the policies adopted, suggested Paul Krugman, winner of the 2008 Nobel Prize in Economic Sciences.

Krugman indicated that “there is constant growth, but there is something that doesn’t click” and suggested as an hypothesis that although Mexcio has improved its social policies in support of the most poor, there are tasks, like the quality of basic education and child nutrition, that will take time to bear fruit.

“We don’t understand at what mysterious point in time that Mexico lost its capacity to grow at a faster rate while other countries, equally unregulated, were able to increase their growth in a sustainable way”, he said.

He recommended to have patience in order to permit the changes in the system of basic education to begin to show results, after emphasizing that investments in human capital tend to take 15 or 20 years to impact growth rates.

“I feel optimistic over the long term for Mexico.  There are those who think it will be around 2030 when higher rates of growth will arrive and that seems about right”, he said.

What vacuous nonsense!  Adam Smith hit the nail on the head on these types of feudal societies back in the 18th century:

Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.  

Comparing Krugman’s words to this icon of the right is quite a depressing exercise.  But such is the state of 21st century “Keynesianism”.

Health care and other services have no need for finance

Obama health care advisor Ezekiel Emanuel’s article today in the Wall Street Journal is an excellent example of how the discourse of finance so easily trumps the real world.  Fearing that health insurance premiums will be too high if not enough healthy young people sign up for Obamacare, he calls for a marketing campaign to get the youngsters to sign up and pay up.

While I suppose this could make sense in the warped regime of finance, it’s quite twisted in the realm of the real.  Real health care resources, after all, are available and they’re standing by eager to provide their services.  In fact, the Journal had an article the other day showing there’s actually an oversupply of nurses.  So, given this availability in the real world, why do we need to worry about finance?  Why do we need to take money away from the average person in order to have a health care industry?

We need to look at this within the broader context of a thoroughly abused population that’s seen its median income as a share of total national income drop an incredible 40% since the 1970’s.  This is robbery, pure and simple; and it’s become a stable fixture of our world given the neoliberal dynamics of ever intensified global labor competition and ever advancing labor saving technologies.  Few things in life are more certain: left to themselves, incomes and general living standards will continue to decline.  Unions helped retard the power dynamics inherent in capitalism during the first seven decades of the 20th century but they’re now gone.  Collective democratic action is the only remaining recourse.

I think the most effective immediate means to improve general prosperity is to fund via direct monetary creation those programs that benefit everyone.  This would include health care, retirement, and other public services.  Providing these for free would be far more effective at achieving a just society than the assorted road, airport, and infrastructure projects funded by debt that are so adored by the center-left but would do little for median incomes.  Not that we shouldn’t also do some of those projects as well, but I think we need to first begin to correct the robbery of living standards that’s occurred for decades now.

It’s highly doubtful that direct monetary creation would be inflationary given humanity’s enormous productive capacity.  Perhaps some of the oligopolistic firms would seek to increase their profit margins in the face of higher purchasing power, but the straightforward solution is price regulation, the obvious requirement for any monopoly-like industry.

Finance isn’t the solution, it’s the problem and basic programs that serve everyone shouldn’t be financed.  They shouldn’t be because, in a world of vast productivity, they don’t have a cost.  Only in the strange world of orthodox finance is a cost created, as if by magic.  The global problem is a lack of employment and purchasing power and not remotely one of real costs needing financing.

The average person won’t see an improvement until the entire foundation of orthodox finance collapses.

Krugman is faking it

Krugman tells us today that “One dead giveaway that someone pretending to be an authority on economics is in fact faking it is misuse of the famous Keynes line about the long run”.  He often likes to use this particular quote but I wonder if it’s perhaps the only one he’s ever read of Keynes given that so much of his economics violates the spirit and very words of Keynes.  He then goes on to provide an excellent example of this Keynesian fakery by asserting that we must recognize “that the boom, not the slump, is the time for austerity”.  What!? Just a cursory look at the entire history of capitalism’s unending boom / bust cycles should dispel the myth that there’s ever an appropriate time for austerity.  Keynes saw this very clearly and the very idea of instituting austerity in boom times violates many of Keynes’s famous lines as we can see:

Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.

Furthermore, even if we were to suppose that contemporary booms are apt to be associated with a momentary condition of full investment or over-investment in the strict sense, it would still be absurd to regard a higher rate of interest as the appropriate remedy. For in this event the case of those who attribute the disease to under-consumption would be wholly established. The remedy would lie in various measures designed to increase the propensity to consume by the redistribution of incomes or otherwise; so that a given level of employment would require a smaller volume of current investment to support it.

I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.

Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.

See any Krugman in these words?  Of course not.  While we can agree with some of his moral points regarding social policy, we must recognize they aren’t grounded in anything like a sane or progressive view of economics.  I don’t think it’s possible to have a socially useful economic theory that’s to the right of Keynes.

I liked yesterday’s post along these lines, by the way, by economist Matias Vernengo on his blog Naked Keynesianism.