Hard Light Productions Forums
Off-Topic Discussion => General Discussion => Topic started by: MP-Ryan on August 15, 2011, 11:43:33 am
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http://www.project-syndicate.org/commentary/roubini41/English
Excerpt from the middle:
So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand.
Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.
To enable market-oriented economies to operate as they should and can, we need to return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of laissez-faire and voodoo economics and the continental European model of deficit-driven welfare states. Both are broken.
As always please Read the entire article before commenting.
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Couple thoughts;
- This is a niggling point, but myself and I think many others don't think we're going to hit a "double dip" recession because we never left the first one. We'll just keep driving lower.
- If Spain/Italy lose market access. I see a lot of ifs in the financial world, and a lot of times they get proven wrong or are nowhere near as bad as all the various pundits say. So far, the S&P downgrade hasn't done much except cause financial turbulence, thus leading to more people using US Debt as a safe haven.
That being said, I see where he's coming from, and it is still too early to tell the effect of the downgrade on the overall economy. I just wanted to point out a lot of the alarmists and pundits looking only at worse case scenarios.
Otherwise, I agree with his conclusions for the most part, and they're all pretty common sense when you think about it. Fair taxes, reinvestment in a country's infrastructure, breaking up the megabanks, basically focusing on helping people at the individual and family level as opposed to helping statistical numbers.
EDIT: as to the original idea of Karl Marx being right about something...alright? He was an intelligent person who like many optimists felt that the solution to the world's problems was to craft it in an image that would seek to do away with sources of perennial conflict. You can (I won't) make the same argument about capitalism; the original idea of unfettered capitalism as it was originally tried in the US was an unmitigated disaster for the majority of the population. Discrediting entire socioeconomic ideas because they didn't work once and thus, are to be studied only as failures for all time, and never tried again in a different context with different improvements, seems folly to me. It's one of those things where I disagree with, say, not teaching people in more detail about Nazism, it's rise, appeal, values, etc. If you don't study it then you can't learn from it. I know if I don't put in this disclaimer here, someone's going to jump on me, but; disclaimer: I am not advocating Nazism, nor am I saying that it's values are ones that we should follow. But we can learn from it's values, the same as we learned from German scientific research during that time period. You study both the "bad" and the "good".
Lastly, as to the question of whether or not capitalism is doomed? I would say no. For all it's flaws, it also has a lot of positive attributes. What I hope we'll see is a more diluted form of capitalism, that takes into account that resources are finite and that all mechanisms, public or private, within society, should be created and operated with the knowledge that they are all part of a finite system and thus need to contribute or at least not harm the general welfare of that system, measured by the individuals involved in it. Wal-Mart, for instance, seems to do a lot of harm to the overall system, but it's accepted because it is a private institution and thus separated from the prerogative that it must take into account the general welfare of everyone (competitors included). This is all unsubstantiated theory though.
I don't understand this term "lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks", can someone explain it please?
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So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong).
Uh, what? Unless the writer of the article refers to communism (and specifies how he defines communism), I don't agree with this sentence at all. Socialism has not proven inferior to capitalism.
In fact, it could arguably be proven that socialism has been integral to the development of the societies that are consistently ranked as the best ones to live in on this Earth (I'm referring to the Nordic countries here, of course).
I'm confused as to how the headline of this article should be anything new to anyone who has even a vague understanding of 20th century history. Societies don't tend to function very well without social security, hence socialism is good. The degree to which social security is implemented, now there opinions may differ; my opinion is that basic services offered by the society should include the following:
-protection from internal and external threats (with right to be protected and obligation to participate in said protection as required)
-schooling, mandatory and free up to second level of education, optional but free or with nominal fees up to university level (higher education), along with national support for the students' living expenses when they move out from their parents'
-basic health care, free or with nominal fees, supplemented with private sector health care
-national pension
-unemployment support
-national control of certain features of the economic system (monetary politics and some businesses owned totally or partially by the state), but nothing like total nationalization of the whole economy - private ownership and private enterprises are not only allowed but encouraged.
The thing is, the defining factor in communism is the total or near total nationalization of all assets within the borders of said nation; everything belongs to the state, and each citizen works according to their means, and the production capacity is the shared to each according to their needs. This is what has never really worked properly, and I assume this kind of total communism has been proven wrong. However, socialism has more to do with the social politics than economical politics, and I dislike the practice of bundling all things associated to socialism under the flag of communism (and therefore automatically bad unless proven otherwise).
To enable market-oriented economies to operate as they should and can, we need to return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of laissez-faire and voodoo economics and the continental European model of deficit-driven welfare states. Both are broken.
Well, I don't know what this expert's definitions about the economic models actually mean, but it should be pretty clear to anyone with a firm grasp on reality that any economical model relying on perpetual growth in an environment of fundamentally limited assets is broken and should be fixed as soon as possible, preferably geared toward a model that can work in a status quo rather than requiring growth, growth and more growth to work.
It's telling that "status quo" in economics is dubbed "stagnation" and is a very, very bad thing.
The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts.
Progressive taxation is one of the common denominators for countries that utilize socialism in the management of their nation, so I don't know where this writer is going with claiming socialism to have "proven worse" than capitalism. I do agree that progressive taxation is the way to go due to marginal utility (http://en.wikipedia.org/wiki/Marginal_utility), though.
Long-term fiscal discipline is the hardest of these to achieve while still providing the aforementioned basic services to the society at large. Reduction in some of the services may be necessary to achieve appropriate budget balance; deciding which services to reduce is a tougher question, though.
Banks should absolutely be monitored to prevent them binding too much of their capital into too high-risk investments, and yes - basic control of financial system (especially monetary politics) is required.
These are all decidedly non-capitalist traits of economic system, and usually associated with socialism, so again I don't know if the writer simply used "socialism" in wrong context when he meant communism, or simply felt like having to add that piece to appease the readers with a knee-jerk reaction to all things red. :sigh:
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In some ways it reminds me of Ayn Rand, of a society so wrapped up in commercialism that individual 'Freedom' becomes more important than society as a whole.
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Reading the comments thus far made me realize I need to highlight something:
redistribution of income and wealth from labor to capital
Marx is perhaps most famous in lay circles for the formulation of communism, but the quote above is actually what most concerned him when writing about economic theory. It is this premise that the article's author is focusing on - modern capitalism has removed control of wealth from those that produce (e.g. those of us who work to make things or services) to those who accumulate (e.g. the few who buy, consolidate, and control corporate investment).
In short, part of the reason that we've ended up in such a financial mess is because wealth is held as capital (investments, properties, commodities) rather than by labour (that is, you are wealthy because you produce things). This is what people (myself included) are getting at when we talk about how massive proportions of overall wealth/income are held by a tiny proportion of the populace (particularly in the United States).
Related to this is a report just published today that Warren Buffet is advocating for taxation on the top 2% (http://www.theglobeandmail.com/report-on-business/international-news/stop-coddling-the-super-rich-buffett/article2129471/). There's irony for you - it takes a billionaire to instruct politicians to tax billionaires.
Now, Marxist social theory proposed that the best social system would be one in which everyone collectively controlled wealth in labour, thereby eliminating capital altogether (e.g. workers own the factories). This is not what is referred as socialism or communism today; Marx's social theories have never actually been implemented.
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so in practice how would such as system work? how would labor own the factories?
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In addition to monetary wages, you'd earn shares in the company for work done. In order to own part of a company, you must have worked in it at some point?
I have no idea how practical that would be, it's just the first thing that came to mind.
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That's just ridiculous of course. If the workers "own" the factories, there is nothing stopping them to sell the factories to any other man. And then we end up the same place where we started from.
*EDIT* Notice that this was *exactly* what happened in Russia after the meltdown of communism.
Why not invent a new citizen salary?
Everyone is given 500 bucks per week. This money comes from most taxes, profits from corporations, millionaires, billionaires, etc. Now poverty is officially declared over, and most of the government "public things" can be closed off. Specially welfare etc. Jobs will still exist: if you want to have more than 500 bucks, then work. If you are jobless, you aren't homeless. Demand will never cease to exist (which in turn give profits to corporations which in turn increase the economy), and there is enough "social security" to guarantee freedom to do creative things.
This may sound crazy, but I think that in the future this is the only right option. Most of the economy will be automatized and robotized, and if we don't do these things, most people will be jobless and homeless and the economy will just skydive with lack of demand.
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That's just ridiculous of course. If the workers "own" the factories, there is nothing stopping them to sell the factories to any other man. And then we end up the same place where we started from.
*EDIT* Notice that this was *exactly* what happened in Russia after the meltdown of communism.
Neither what you've described nor what occurred in Russia are examples of the communist society Marx described. His communist society was envisioned as one of exacting equality, where everyone produces what they can and lives accordingly; there is no accumulation of wealth. I'm really not doing the description justice here, since it is quite the thought-experiment, but the practical side of the matter is that the competitive and Darwinian side of human nature would never allows us to collectively function in Marx's communism as a species.
Why not invent a new citizen salary?
Everyone is given 500 bucks per week. This money comes from most taxes, profits from corporations, millionaires, billionaires, etc. Now poverty is officially declared over, and most of the government "public things" can be closed off. Specially welfare etc. Jobs will still exist: if you want to have more than 500 bucks, then work. If you are jobless, you aren't homeless. Demand will never cease to exist (which in turn give profits to corporations which in turn increase the economy), and there is enough "social security" to guarantee freedom to do creative things.
This may sound crazy, but I think that in the future this is the only right option. Most of the economy will be automatized and robotized, and if we don't do these things, most people will be jobless and homeless and the economy will just skydive with lack of demand.
One word: Inflation.
The moment anyone makes more than your baseline, inflation becomes a fact of life, and that brings social stratification. $500/week would be below the poverty line in the society you just described. The monetary value is irrelevant; a baseline wage does not guarantee a standard of living if inflation can act in the financial system.
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The moment anyone makes more than your baseline, inflation becomes a fact of life, and that brings social stratification. $500/week would be below the poverty line in the society you just described. The monetary value is irrelevant; a baseline wage does not guarantee a standard of living if inflation can act in the financial system.
Yes, inflation was clearly a downside of that idea. I'm no economic expert, so I really don't know if that could work, but just looking at it, one could see that inflation would be only a problem until the system would become "stable". The 500$ a week would rise (or lower) according to inflation. I don't mind "social stratification" at all, and I think that's just what capitalism ensures anyway. What I think one should strive against is the effects of increasing unemployment that is about to occur slowly throught the next decades due to automation (picture manufacture, retail, services, etc. being substituted by robots / automata / basic AI).
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I'm really not doing the description justice here, since it is quite the thought-experiment, but the practical side of the matter is that the competitive and Darwinian side of human nature would never allows us to collectively function in Marx's communism as a species.
That's an essentialistic argument that ignores the fact that repeatedly throughout the world we have examples of small scale societies with strong egalitarian ethics. That is not to say that there are not inequalities by gender or age lines, but there are not inequalities by class.
The trick with Marx is trying to combine industrial societies with the strong social rules against aggrandizement seen in non-food producing contexts.
It has worked on small scales such as Kibbutz and various communes. The trick is figuring out a way to convert that into a large scale social structure considering how inter-community networks are one of the big tricks that can allow individuals to erode egalitarian social rules.
So, needless to say it is possible regardless of attempts to 'naturalize' capitalism with biological arguments over the past two centuries (Spencer was quite happy to use Darwin to justify the status quo). It's just going to be something that would require radically re-working society from the ground up, which isn't going to happen.
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Yes, inflation was clearly a downside of that idea. I'm no economic expert, so I really don't know if that could work, but just looking at it, one could see that inflation would be only a problem until the system would become "stable". The 500$ a week would rise (or lower) according to inflation. I don't mind "social stratification" at all, and I think that's just what capitalism ensures anyway. What I think one should strive against is the effects of increasing unemployment that is about to occur slowly throught the next decades due to automation (picture manufacture, retail, services, etc. being substituted by robots / automata / basic AI).
I'm talking about inflation's effect on the cost of living. Let's use an example.
You and I live in a village. We exchange eggs in lieu of currency. We each get 5 eggs per week from the "government" of the village. Since we get the same number of eggs, we can all afford to pay the same number of eggs for the same items. There is no inflation/deflation effect. Now, I go and get another job, and earn 2 more eggs a week. Now I can buy more things than the rest of the village because prices are low. The merchant decides to raise her prices by 1 egg and get a piece of the action. Now I'm only up 1 egg on the prices, but everyone else is shy one egg. They decide to cut out some expenditures and get by with a little less (though not after some griping, but all the other merchants charge the same prices now). Now I get a raise in my extra job - and so on.
In your scheme, $500 becomes the new no-earnings. Since everyone has it, the only thing that matters is if someone can pay more than the baseline. So long as someone can and there is demand, prices rise. This is a really simplistic explanation of inflation, but the point is that equal-pay schemes only work if there is no ability for one or more people to go beyond what everyone else has. Since that is effectively impossible to regulate, such a system isn't possible. This is exactly why the tried-and-failed solution of printing money to increase wealth doesn't work - for a real world example, look at the history of Germany following the First World War and the price of bread.
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****ing communists, leave my fluids alone!
btw i did not read the article, because im an asshole.
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That's an essentialistic argument that ignores the fact that repeatedly throughout the world we have examples of small scale societies with strong egalitarian ethics. That is not to say that there are not inequalities by gender or age lines, but there are not inequalities by class.
Nonsense. Show me an egalitarian society and I'll show you a class structure. It's true of the communes in America, it's true of the Amish, Mennonites, Hudderites, and pretty much every other socioreligious group I'm familiar with. Each and every single one of them has a social class structure. While it may not be as pronounced as Britain's formalized structure, or the US' informal-yet-blatant structure, it's there - class is not a matter of just economics, but also opportunities, standing, and power. There isn't a social mammalian species on Earth that doesn't have a class structure built into their group behaviours.
Human beings are built to function in small cooperative social groups. We are still operating with social behaviours, biologically-programmed, that don't mesh with the type of society most people claim to want. Spencer's explanation isn't correct, but it isn't completely incorrect either. Marx's teachings rely on a conception of human beings that is inherently rational. We aren't.
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I'm talking about inflation's effect on the cost of living. Let's use an example.
You and I live in a village. We exchange eggs in lieu of currency. We each get 5 eggs per week from the "government" of the village. Since we get the same number of eggs, we can all afford to pay the same number of eggs for the same items. There is no inflation/deflation effect. Now, I go and get another job, and earn 2 more eggs a week. Now I can buy more things than the rest of the village because prices are low. The merchant decides to raise her prices by 1 egg and get a piece of the action. Now I'm only up 1 egg on the prices, but everyone else is shy one egg. They decide to cut out some expenditures and get by with a little less (though not after some griping, but all the other merchants charge the same prices now). Now I get a raise in my extra job - and so on.
Again, this is not really a big time problem prima facie. You are considering that the entire market would be "resetted" and "averaged" to 500 dollars. Not at all. 500 would be a minimum earning, so to speak. If you get a job you earn on top of it, instead of being on top of zero. Now, sure there would be inflation, but the feedbacks wouldn't cross the threshold of 1, and so they would be eventually tamed.
In your scheme, $500 becomes the new no-earnings. Since everyone has it, the only thing that matters is if someone can pay more than the baseline.
Uh? No. Everyone gets 500. We could even end the "minimum wage". If you get a job for 300, you end up with 800. It's your choice. This would change the whole work labor management, for sure, but it's by no means simplistic like you paint it to be.
So long as someone can and there is demand, prices rise. This is a really simplistic explanation of inflation, but the point is that equal-pay schemes only work if there is no ability for one or more people to go beyond what everyone else has. Since that is effectively impossible to regulate, such a system isn't possible.
Uh? What? No! In this scheme, no one would be forced to earn "equal" to anyone else. The 500 bucks work as a baseline, and upwards from that, it's full blown capitalism at work, even more "libertarian" than what exists nowadays.
This is exactly why the tried-and-failed solution of printing money to increase wealth doesn't work - for a real world example, look at the history of Germany following the First World War and the price of bread.
Because the system I'm speaking of is exactly what was followed by Germany after the first WW /sarcasm
Try to understand better what I am saying. I'm sure there are holes in the idea, major ones, but you just went on a rampage against strawmans.
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There doesn't have to be inflation in Luis' scenario! There is only inflation if the government does not take in at least $500 per person on average. That's what taxes are for.
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Oh, sure, I'm not suggesting a deficit budget ;)
EDIT: oh, and i'm not exactly inventing the wheel here. This is a known concept:
http://en.wikipedia.org/wiki/Basic_income_guarantee
Brasil, for instance, is doing experiments on this.
(hell saying that this idea is communistic flies in the face of it being advocated by Friedman and Hayek! This could be the idea that merged the best of socialism with the best of capitalism)
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I'm not arguing against strawmen, I'm pointing out that even basic economics makes a plan like that pointless. Luis, the point is that something like a basic income guarantee becomes moot if everyone is entitled to it - inflation will raise prices to the point where the guarantee is worthless because inflation is controlled in part by levels of disposable income, and affects both pricing and income levels itself. If everyone has at least $500/week, then it has just become the new basic minimum standard for poor living.
Economics on a macro scale aren't about hard and fast values of wealth, but about wealth values relative to each other. When you introduce a flat measure across the board, the net effect is essentially zero. Were it indexed to inflation then you might have a basic benefit that would cover some essentials, but that's providing prices rise or fall in direct accordance with inflation, which isn't always the case.
There are obviously a lot of very smart people in favor of a similar system, but they obviously have some sort of idea of how to address inflation's inevitable effect on it which neither you nor the Wikipedia article have elaborated upon. I'm not even close to an economist, so perhaps someone with an education in the subject would care to comment on it.
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Sure, as I said I'm not an economist, so don't really expect a solution from me. Thing is, you are saying that a 500 bucks baseline is equal to a zero baseline, and even with a great deal of inflation I just can't see that happening.
If you are going to say that there will be superinflation due to people earning 500 bucks then I just think you are wildly wrong.
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Sure, as I said I'm not an economist, so don't really expect a solution from me. Thing is, you are saying that a 500 bucks baseline is equal to a zero baseline, and even with a great deal of inflation I just can't see that happening.
If you are going to say that there will be superinflation due to people earning 500 bucks then I just think you are wildly wrong.
I invite you to look closely at the differences in wages in 1961 versus 2011, and the prices of consumer goods in 1961 versus 2011. Unless a supplement is tied in value to inflation, it will become worthless over time. I'm not saying it would happen in even 5 or 10 years, but given sufficient time and economic pressure a flat value will become worthless unless it is constantly amended to keep pace with wages and prices. The pressure from simply having everyone receive an additional flat income supplement would drive an increase in inflation anyway.
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So you are not paying attention, since I said that this value would be indexed to inflation ;)
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So you are not paying attention, since I said that this value would be indexed to inflation ;)
In a supplemental post you said "The 500$ a week would rise (or lower) according to inflation" by which I didn't take you to mean indexing, but if you did then fair enough. [I had read that initially as the value of the supplement would rise and fall when acted upon by inflation.]
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I'm not arguing against strawmen, I'm pointing out that even basic economics makes a plan like that pointless. Luis, the point is that something like a basic income guarantee becomes moot if everyone is entitled to it - inflation will raise prices to the point where the guarantee is worthless because inflation is controlled in part by levels of disposable income, and affects both pricing and income levels itself.
I would like to point out something I think you may have missed...
There is only inflation if the government does not take in [as much as they spend].
When the government spends, it's inserting new money into the system, either by increasing the amount in someone's account, or literally minting new currency. Likewise, when the government taxes, it's removing money from the system. The government can add as much money to the system as they want--- there will only be inflation if they fail to remove as much from the system.
That's what taxes are for.
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Taxes don't remove money from the system (whichever system you refer to).
They don'y magically exit anywhere. They are used to invest in new things, fund government salaries, public services etc. etc. Taxes stay in circulation.
Taxes are an expenditure to the taxpayers but income to the state.
However, as the state utilizes the income, it's paid back to the taxpayers either in services, goods or even direct salary if you happen to be employed by the state in one way or another.
Example: Rolf Roadmaker pays a tax. Then he's hired to build or fix some road, which is funded by the state.
Could you exemplify what you mean by "taxes remove money from the system"?
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online book I skimmed recently which I'm recalling the idea from (http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf)
Of the money that is collected as taxes, I reckon almost none of it is cash---it's bank accounts. Of course, I suppose it's similar when a private individual collects more money than they spend... while they sit on their money, that money won't do anything... but yes I suppose it still exists.
But unlike an individual, the government can literally create money out of nowhere.
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Mixed economies with counter-cyclical fiscal and monetary policies and large social spending are as American as apple pie. See American economy, 1937-1980.