(Editorial cartoon by Signe Wilkinson (09/12/13) from Philadelphia Daily News)
"5 years after crash, wealthy are better off"
2013-09-11 by Andrew S. Ross from "San Francisco Chronicle" [http://www.sfgate.com/business/bottomline/article/5-years-after-crash-wealthy-are-better-off-4806984.php]:
This week marks the fifth anniversary of the collapse of Lehman Bros., heralding the Great Recession. And there's been a fair amount of studies and stock-taking.
The main takeaway: the better off are better off than ever. Most of the rest are right where they started, or worse.
For example, earnings of the top 1 percent (those families making more than $394,000 a year) commanded 95 percent of the income gains generated between 2009 and 2012. Their earnings grew by 31 percent in the period, compared with 0.4 percent for the less fortunate.
That's according to a study published last week by UC Berkeley economist Emmanuel Saez, whose finding in 2011 that income inequality in the United States is the widest since 1928 was highly publicized.
In fact, according to the latest study by Saez, whose numbers are drawn from IRS data, America's top 10 percent (those households earning above $114,000) account for more than half of the nation's total income, the highest percentage since 1917.
Despite improvements in the economy, "it seems unlikely that U.S. income concentration will fall much in the coming years," Saez concludes. (Details: http://bit.ly/1eijA43)
Or it could intensify. Factoring in inflation, median household income ($52,000) has actually fallen by 4.4 percent since June 2009, according to Sentier Research, a Maryland consultancy, in a report last week based on government statistics. That includes "a period of stagnation" over the past 18 months, when the economy was supposed to be getting better.
"The failure of an improved labor market to translate into higher levels of household income raises troubling questions about the types of jobs created over the past year and a half, the level of pay that they generate, and the effect on household income levels from people who have dropped out of the labor force altogether," said the consultancy's Gordon Green, a former U.S. Census Bureau senior statistician. (http://bit.ly/17X4Hgs)
Then there's the Federal Reserve, which reported that American families have recovered just 45 percent of the $16 trillion in wealth that went down the tubes in the recession.
And most of the recovery has gone to the wealthy, whose income bounced back largely thanks to the recovery of the stock market, according to an analysis by the Federal Reserve Bank of St. Louis in May.
"Families that were younger, that had less than a college education and/or were members of a historically disadvantaged minority group (African Americans or Hispanics of any race) suffered particularly large wealth losses," the report stated. (http://bit.ly/1d6nsBa)
Fortune magazine, whose readers have a median household income of $91,000, probably appeals more to the 10 percent who are doing pretty well. Here's Managing Editor Andy Serwer in a Sept. 2 front of the book editorial titled "The Income Gap."
"So if you are with me so far and believe that income inequality is a problem, how do we solve it? We have to take a hard look at the effective tax rates of our very wealthiest citizens and have the fortitude to change the tax code, especially rates on capital gains.
"On the other side of the coin, we should increase the minimum wage. The federal minimum wage was last raised in July 2009 to $7.25 an hour, which works out to $15,080 a year. Consider that in 1968 the minimum wage was $1.60, which is $10.74 in 2013 dollars, or $22,339 a year. Wow is right.
"It's time to acknowledge that growing income inequality is a trend we need to reverse, and that we need to find ways to make that happen. The super-rich should realize that after decades of outpacing the mean, their income growth will revert to it at some point. How that happens is the biggest question of them all."
In the following article, the representative council of the owners of the economy explain that purpose of a good economy is to increase profits, and not to raise the standard of living for the working poor.
"Brown supports rise in minimum wage to $10"
2013-09-11 by Justin Berton from "San Francisco Chronicle" [http://www.sfgate.com/news/article/Brown-supports-rise-in-minimum-wage-to-10-4807422.php]:
Giving momentum to workers who rallied this summer to increase the minimum wage, Gov. Jerry Brown said Wednesday that he supports a bill that would boost California's basic wage from $8 to $10 by 2016.
The bill passed the Assembly in May and awaits a vote in the Senate. Legislators have a Friday deadline to pass the bill.
"The minimum wage has not kept pace with rising costs," Brown said in a statement. "This legislation is overdue and will help families that are struggling in this harsh economy."
Yet the California Chamber of Commerce described the bill as a "job killer" and said increased wages would drive up costs for business owners.
Denise Davis, a spokeswoman for the chamber, said the higher costs could stall gains made in the recent economic recovery.
"What's at stake are California jobs and an improving economy," Davis said.
The governor's support arrived as welcome news for workers who've pressed for a federal minimum wage increase this summer. Some workers this summer held rallies outside fast food restaurants to demand a raise in the minimum wage.
Scott Myers-Lipton, a sociology professor at San Jose State University who last year led a measure that increased the minium wage within the city to $10, said AB 10 by Assemblyman Luis Alejo (D-Watsonville) is a positive step but lacks the power to increase wages with inflation.
"Ten dollars is great news today," Myers-Lipton said. "Nevertheless, it's not going to be worth $10 in 2016. It's going to be worth a lot less, and that's the weakness of this announcement."
Outside a Berkeley Jack in the Box restaurant, UC Berkeley student Arturo Dominguez, 24, said he would have loved to have made $10 when he got his first job at an East Bay McDonald's as a teenager.
But, he added, in the bigger picture the wage was still meager.
"You can't buy lunch for $10," the political science major said.
"A Keynesian or Marxist depression?"
2013-11-20 [http://thenextrecession.wordpress.com/2013/11/20/a-keynesian-or-marxist-depression/]:
Regular readers of this blog know that one of my main themes is that the world capitalist economy is now in a Long Depression, led by the major advanced capitalist economies (http://thenextrecession.wordpress.com/2012/10/05/the-long-and-winding-road/) and (http://thenextrecession.wordpress.com/2013/02/10/why-is-there-a-long-depression/). see my book, The Great Recession and this post from 2011,
(http://thenextrecession.wordpress.com/2011/09/18/it-feels-like-a-depression/)
By a Long Depression, I mean economies growing consistently at well below their previous trend rates, with unemployment stuck at well above previous levels before the Great Recession, and disinflation (slowing inflation) turning into deflation (falling prices). Above all, it is an economic environment where investment in productive capital is way below previous average levels, with little sign of pick-up (http://thenextrecession.wordpress.com/2011/11/25/us-investment-strike/). Indeed, this depression is now reaching the so-called emerging economies, where, even with their large supplies of cheap labour and imported new technology, real GDP growth is also slowing.
This designation has not had a lot of support among economists of any theoretical hue until now. But suddenly the idea of ‘permanent depression’ has surfaced from the ‘great and good’ in mainstream economics. At the recent IMF conference on the causes of the crisis (http://thenextrecession.wordpress.com/2013/11/11/why-the-crisis-and-will-there-be-another-imf-speaks/), Larry Summers, former Goldman Sachs executive, ex-US Treasury secretary, ex-President of Harvard University and failed candidate for the head of the US Federal Reserve, pronounced that the efforts of central banks to revive the economy with low or zero interest rates, or with the ‘printing of money’ through QE-type purchases of government and private sector financial paper, was not working to return economies to ‘normal growth’. “Even a great bubble wasn’t enough to produce any excess of aggregate demand…even with artificial stimulus to demand, coming from all this financial imprudence, you wouldn’t see any excess… the underlying problem may be there forever”. So “we may well need in the years ahead to think about how to manage an economy where the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back below their potential.”
Apparently even ‘unconventional’ monetary policies are not doing the trick for the economy, except to drive up stock market prices in a new (non-inflationary) bubble. Summers’ view has been echoed by a litany of Keynesian epigones like Paul Krugman, ex-Goldman Sachs chief economist and FT blogger Gavyn Davies, and FT columnist and pal of them all, Martin Wolf. For them, it seems that capitalism is not working ‘automatically’ to return to ‘equilibrium growth’ and deflationary pressures are becoming dominant.
As Krugman put it in his blog post, called A Permanent slump? (http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html): “What if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?… so that “the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between“ ? Krugman goes on: ”Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles, the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.” Yikes, so it appears that the major capitalist economies cannot grow at rates that would achieve full employment any longer even with negative real interest rates.
Does this mean that the great economics gurus now agree with me about the state of the world capitalist economy? Well, not really. Let me try to explain why I think this new love-in about depression from the likes of Summers, Krugman and Wolf differs from my view (and for that matter what I would consider is Marx’s). First, for the Keynesians, the depression is a product of money hoarding by capitalists leading to a permanent lack of ‘effective demand’.
But what the likes of Krugman do not explain is why this hoarding suddenly happened and why it won’t end, even with negative real rates. Should we not look elsewhere from the financial sector and central bank policy towards what is going on in the real economy: and under capitalism, that means what has happened to the profitability of capital?
Krugman now talks about ‘secular stagnation’ under capitalism since the 1980s, echoing the arguments of the neo-Keynesian economist Alvin Hansen in the immediate post-war period who extrapolated Keynes’ theory to mean the gradual slowdown in growth; or the more recent ideas of Robert Gordon about the collapse of innovation and productivity in modern capitalist economies (see my post,
http://thenextrecession.wordpress.com/2012/09/12/crisis-or-breakdown/).
Krugman reckons this secular stagnation may be caused by ”slowing population growth” keeping effective demand low, or it may be caused by “persistent trade deficits” [http://research.stlouisfed.org/fred2/series/A019RE1A156NBEA], which emerged in the 1980s and “since then have fluctuated but never gone away “. The first explanation looks outside of the motions of capitalist accumulation to some exogenous law of nature and the second really refers to imbalances between capitalist economies, rather than capitalism as a world economy. Both deny any fault in the fundamental workings of modern capitalism and neither sounds convincing.
Martin Wolf also takes up the theme of ‘stagnation’ in his latest blog post in the FT, Why the future looks sluggish, (http://www.ft.com/cms/s/0/a2422ba6-5073-11e3-befe-00144feabdc0.html). For Wolf, the cause of this new depression is a ‘global savings glut’ or a ‘dearth of investment’ caused by ‘excessive hoarding’ of savings by capitalists unwilling to invest: “the world economy has been generating more savings than businesses wish to use, even at very low interest rates. This is true not just in the US, but also in most significant high-income economies.” So the problem of the long depression is a surplus of profits not low profitability.
This is a hoary old argument that originated from Ben Bernanke, the current chief of the Fed, back in the early 2000s, when he argued that the cause of the ‘persistent trade deficits’ in the US and the UK were caused by ‘too much saving’ in the ‘surplus’ countries of Asia and OPEC. Thus the credit binge and the subsequent credit crunch was really the fault of the likes of Japan or China not spending enough on US goods! Now it is the fault of everybody for not spending enough. But again the question is why are people not spending enough? That’s not difficult to answer when it comes to average households, decimated by reduced incomes and unemployment, but why don’t capitalist companies in the US or the UK or Europe invest more? Wolf thinks it may be due to ‘excessive debt’ being built up during the credit binge before the Great Recession. So the crisis was caused by ‘excessive spending’ and now the depression is caused by ‘excessive saving’. Capitalism just swings from one to the other!
Wolf also thinks the failure to invest may be due a change in the culture of capitalist firms, which no longer want to invest in productive capital but prefer to play the stock market or buy financial assets. So that is what the great capitalist system has come to – a ‘rentier’ economy. I have dealt with these arguments before in this blog (http://thenextrecession.wordpress.com/2013/10/19/the-fallacy-of-causation-and-corporate-profits/) and I intend to return to them in a future post. But once again, the idea of the profitability of capital in what is, after all, a profit economy by definition where people invest to make a profit, is totally absent from the explanations of Krugman or Wolf.
Noah Smith, a Keynesian blogger, recently considered how to get out of the depression (http://noahpinionblog.blogspot.co.uk/2013/10/on-depressions-structure-of-production.html): “The solution to lowered growth and elevated (and involuntary) unemployment is relatively simple. Eventually someone will start using up the idle resources. This will either be the private sector once it independently gets over its slump in animal spirits, or it will be the government.” See [http://azizonomics.com/2013/06/19/the-unemployment-is-voluntary-myth/] [http://azizonomics.com/2013/03/28/when-is-austerity-necessary-at-the-treasury/].
Ah, yes ‘animal spirits’ will return. Or will they? Smith recognises that they may not any time soon because “it is perfectly plausible that the economy — as it has done — can remain depressed even with very low rates due to deleveraging pressures, low expectations and low confidence, etc.”
So the explanation of the depression is: high debt still being deleveraged, “low expectations” (of profit?) and “low confidence” (in what?). Again, no mention of what is happening to profitability.
Smith reckons that “if the market is ill-suited to taking up the idle resources any time soon — lying as it is in a depressive, irrational strop — the only agent that can do so is the state. The state can borrow money (utilising idle capital) to create jobs (utilising idle labour), raising interest rates and bringing down the unemployment rate. And this approach does not require anyone to make accurate predictions about the future. It simply requires a market economy, and a state willing to employ idle resources when they are idle…and note that I favour a predominantly market-based economy. Government interventions should be kept to a necessary minimum.” So state investment can save the day if private investment won’t – but keep it to a minimum.
“By lowering unemployment and using up idle capital (preferably in a mix of state-run infrastructure and technology projects, and lending to new businesses) more businesses can be born into existence”. Once the state has done its lifesaving role, we can return to normal: “Sooner or later, of course, the private sector will come back and begin to use up resources.” The trouble is that the normal “could be a very, very, very long way away. If we want the structure of production to adjust to the new world and to continue adjusting as the world continues to change, letting huge quantities of resources sitting idle seems like a bad way to do it.” So we need “targeted fiscal policy”. Government to the rescue.
Again, there is no explanation why capital is idle – could it be that it is not sufficiently profitable? The only way to revive that profitability is through slumps that destroy the value of accumulated unproductive capital, so that profitability (relative to remaining value) will then rise and allow the process of accumulation to resume. After a period of a huge buildup of both tangible and fictitious capital over the last 20 years, capitalism went into a Great Recession. But, as in the Great Depression of the 1930s, it cannot get out of this long slump without a massive destruction of dead capital. World War 2 eventually managed to do that. In the 1880s and 1890s, it took a series of major slumps before sustained growth resumed. That is similar to now. Just more government spending designed to ‘stimulate’ or even replace (temporarily) the private sector will not do the trick. Only the replacement of capitalist accumulation with state-planned investment as the dominant mode of production would do so. Otherwise, we can expect yet another slump down the road, before ‘secular’ stagnation will cease.
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