On Economy, Pessimism Abounds
Twenty years ago, in 1990, the American economy was in the third year of a deep recession. It was impossible to find a job. The 1980s housing bubble had popped; high-end housing prices in New York City dropped by 80 percent. Then, as now, the president seemed oblivious, aloof and clueless. Two years later, with no recovery in sight, angry voters turned him out of office.
But help was on the way. Something called the World Wide Web appeared in 1991. Two years later, Mosaic—the first graphic web browser, which would evolve into Netscape—was introduced. The Internet boom began. It flamed out seven years later, but in the meantime tens of millions of Americans collected new, higher paychecks. They spent their windfall. Consumer spending exploded. So did government tax revenues. When Bill Clinton left office in 2001, the Office of Management and Budget was projecting a $5 trillion surplus over the next ten years—enough to pay off the national debt and fund Social Security for decades. Unemployment had fallen to four percent. United States GDP accounted for a quarter of the global economy.
It’s different this time. We are in a deep depression: calculated the same way as it was in the 1930s, the unemployment rate is the same as it was in 1934. Global credit markets have stalled. Investment has ceased.
And help isn’t coming.
Despair oozes between the lines of media interviews of economists. Asked where the recovery will come from, they run down the list of theoretical possibilities, dismissing them one by one. The question remains unanswered. Which is, of course, the answer.
No one knows where the recovery will come from for a simple reason: It isn’t coming. Not any time soon.
“A robust rebound in retail sales earlier in the spring had fueled hopes that consumer spending—which makes up about 70% of U.S. economic activity—would give a strong lift to the recovery. But now that is looking increasingly unlikely,” reported The Los Angeles Times. “Households are not going to be the engine of growth for some time,” Paul Dales of Capital Economics told the newspaper.
“In past recoveries, booming construction activity led the way, fueling spending and other economic activity. That’s not happening this time,” said the Times.
If there’s some new technological innovation—like the Internet in the early 1990s—waiting in the wings, no one has heard or seen it.
Forget about Congress. The feds wasted hundreds of billions of dollars to bail out banks, insurance companies and big automakers who used our taxpayer money to give raises to their top executives and remodel their offices. Meanwhile, the stimulus that needed to happen—bailing out distressed homeowners, small businesses and individuals who lost their jobs—never happened. Now Congress is worried about the deficit. So read my lips: no new bailouts, not even one that might actually work.
Some think the U.S. could export its way out of the depression. But a radical restructuring of trade agreements and manufacturing infrastructure would have to come first, followed by years of expansion. U.S. policymakers haven’t even begun to think about the first move. Moreover, the rest of the world isn’t in a position to buy our stuff. The rate of expansion of the economies of China and Japan is slowing down. Germany and other EU nations are imposing austerity measures.
Globalization is key. Writing in The Wall Street Journal, John H. Makin argues that the actions of individual G20 nations threaten to bring the whole system crashing down in a Keynesian “paradox of thrift.”
Makin says: “Because all governments are simultaneously tightening fiscal policy, growth is cut so much that revenues collapse and budget deficits actually rise. The underlying hope or expectation that easier money, a weaker currency, and higher exports can somehow compensate for the negative impact on growth from rapid, global fiscal consolidation cannot be realized everywhere at once. The combination of tighter fiscal policy, easy money, and a weaker currency, which can work for a small open economy, cannot work for the global economy.”
Adds Mike Whitney of Eurasia Review: “Obama intends to double exports within the next decade. Every other nation has the exact same plan. They’d rather weaken their own currencies and starve workers than raise salaries and fund government work programs. Class warfare takes precedent over productivity, a healthy economy or even national solvency. Contempt for workers is the religion of elites.”
One can hardly blame workers for fighting back. Two weeks after hundreds of protesters rioted at the G20 summit meeting, Toronto police are pouring through thousands of photos and are using facial recognition software to track down offenders. They have even released a Top 10 “Most Wanted” list and related pictures of activists.
Whether or not the anti-globalization protesters are motivated by the struggle for liberation and economic equality, they symbolize the industrialized world’s best chance to prevent the economy from continuing its current process of slow-motion collapse. If the system cannot be saved by consumers, business or government, the system itself must be revamped and replaced. Late-period global capitalism’s constant cycle of booms and busts is unsustainable and intolerable. States must regulate and equalize incomes, and control production.
If the cops were smart, they would track down and arrest those people who really are ruining the economy. They could start by listing and releasing the photos of the attendees of the G20.
(Ted Rall is the author of “The Anti-American Manifesto,” to be published in September by Seven Stories Press. His website is tedrall.com.)
COPYRIGHT 2010 TED RALL
65 Comments.
Oleg,
You may be confused about my original comment on Ted’s remarks, so let me make it clear. When Ted talks about equalizing incomes I assume he’s talking about both employees earnings across the board (from janitor to general manager) AND employers’ profits. I again ask, how is that possible without an overbearing, repressive state machine? And this is not to mention the part about “controlling production”. Brrr…
Second, you’re confusing “value” and “price”. The price of labor, like I said before, is dictated bysupply and demand, like every other good out there. This is indeed so basic as to be bewildering that anyone would disagree.
“Care to reference, preferably on the work of the authors you attribute it to?”
It’s original! Alot of my turns of phrase are original. Call me eccentric, or creative, or imprecise. Better yet:
Why don’t you just tell which term you would prefer I use to refer to your preferred labor to price function since you don’t appreciate what I thought was a very clever way out of the paradigm forced upon us by Smith, Locke and Marx (ie. labor theory of value).
try this search:
“value theory of labor” site:mises.org
Bucephalus,
The problem with your private fantasy about the internet is not so much that every example you have brought me so far has been well known publicly funded ventures (RFC and John Postel being products of Public universities collaborating with the military). The bigger problem is that you are just starting way too late. We don’t have to go back to the first computers, or even to the first language… just to MIT a decade before you are even starting..
L. Kleinrock, “Information Flow in Large Communication Nets”, RLE Quarterly Progress Report, July 1961
L. Roberts & T. Merrill, “Toward a Cooperative Network of Time-Shared Computers”, Fall AFIPS Conf., Oct. 1966.
L. Roberts, “Multiple Computer Networks and Intercomputer Communication”, ACM Gatlinburg Conf., October 1967.
bucephalus,
Don’t bother. Oleg is off her meds. She was attributing quotes and ideas to me that I never posted.I assume she is using the 386 in the common area at her senior assisted home.
try this search: “value theory of labor” site:mises.org
Produces exactly five results, all of which seem to be, just like in your case, a miswrite of “labor theory of value”. You know, sometimes it’s just plain easier to say: I was wrong.
The problem with your private fantasy about the internet is not so much that every example you have brought me so far has been well known publicly funded ventures (RFC and John Postel being products of Public universities collaborating with the military).
Jon Postel was not a product, eek! Silly me, I thought that MIT was a private institution. It still beats me how you can overstate the role of the “customer” in a collaboration between private and public universities and private companies (IBM, DEC, AT&T, 3Com etc). And I don’t suppose that the ARPAnet being a product of military demand, makes you love the DoD, does it?
Highway, my quip about “Oleg” is because it sounds like a (male) Russian name. You know: Russian, commie, blah-blah.
But I think the guy’s name is Angelo.
You know, sometimes it’s just plain easier to say: I was wrong.”
If I had been referring to the “labor theory of value”, I would indeed be very wrong. You know I was referring to it’s opposite. I can tell you want to move on. I know you are enjoying the process of exposing people to your favorite economic opinions. The reason you and I are still having this conversation is precisely because we cannot say things we know to be untrue.
Produces exactly five results, all of which seem to be, just like in your case, a miswrite of “labor theory of value”.
Also, just curious, is this one of the “miswrites” you are referring to?
here’s the quote from “thedo” at mises.org:
“This myopic view smacks me of a biased capitalist view, which is that the fundamentals of laissez faire economics are derived from Adam Smith; namely, the value theory of labor, which is to say that the value of a product is contained in how much labor produced it, and, as I stated above, to believe this is to err. The topic of any other school of laissez faire economics never enters the picture. My class is left to believe that it is equated with the labor theory of value, which is in error.”
1) He attributes my turn of phrase to Smith while making a distinction between Smith’s and Marx’s very similar views on labor.
2) I attribute my turn of phrase to mark a distinction between you and Marx on the topic.
Why don’t you just tell me how you want me refer to the notion that the value of labor is derived from what a buyer is willing to pay.
What you quote (that the value of a good is proportional to the labor involved in its production) is exactly a summary of the Labor Theory of Value, which is a cornerstone of Marxian economics, even though it’s not a Marx original. The poster seems to be as confused (perhaps about the language, in his case) as you.
Why don’t you just tell me how you want me refer to the notion that the value of labor is derived from what a buyer is willing to pay.
How about “supply and demand”? That, I can agree with. It still doesn’t explain why the janitor should make the same money as the top salesman, let alone the CIO. And it has nothing to do with my remarks about Rall’s wacky “policy” recommendations.
Bucephalus,
It is called antimetabole. You switch around the words in a phrase to make a point, or to contrast the meanings of two ideas. It is especially useful when you are turning a convention on its head. Here is an example:
Marx, Locke and Smith propose a labor theory of value, I propose to you today, a value theory of labor…
and then you are supposed to go on to explain.
Now that we are all caught up on antimetabole, we can, perhaps, actually begin to talk about income inequality.
Your point, (without scrolling up ad infinitum, so feel free to parse) is that implementing income equality and/or a highly managed economy requires a prohibitively repressive state apparatus. It seems like you have an example of a state that’s not repressive. States are like candles. Some burn more quickly than others, but the amount of murder and repression they rack up in the process is comparable in the long run. Take the famed German state from the 30s, or the Russian state over the same period. Correcting for geographical and population considerations, the repression over the same period was roughly comparable; millions imprisoned, killed or forced to flee.
The coffee oligarchy in El Salvador, the US and other sustained governance providers will take much longer, but they will get there…gotta go tbc
I don’t have an example of a state that’s not repressive. Doesn’t mean they’re all equally repressive. Doesn’t mean we can’t strive to have less repressive government. Actually, to me and like-minded people, that is the ultimate political goal: increasing freedom.
Your goal of an egalitarian, control economy is only possible under an increasingly repressive government. In that light, the goal of egalitarianism is not only seen as impractical, or unattainable (which it indeed is), but also, immoral.
“Your goal of an egalitarian, control economy is only possible under an increasingly repressive government.”
Freedom is like an ouroboros.
We can put aside much of what we read because pretty much all of our foundational literature, and certainly anything pertaining to social contract is built upon a flawed conception of the state of nature (be it Locke, Smith or Hobbes). Work in the field of archaeology is failing to seep into other fields, but we can predict what the Hobbes of the next eon will say:
“Life, for most, outside the state of nature, was nasty, brutish and long.”
You and I are probably discussing how best to arrive at the best possible approximation of the state of nature, which the evidence now suggests was overflowing with equality and freedom.
You think that simply promoting freedom will get us back. I think that freedom eats itself unless it is fostered with an eye toward equality. Who is supposed to stop the bank from freely buying every parcel of land on my block and artificially raising the price out of anyone’s range? Are we just supposed to wait for the market to bring the price of the land back down to its actual value? Freedom hardly solves this problem.
Quoth Oleg/Angelo:
“Life, for most, outside the state of nature, was nasty, brutish and long.”
You’re OD’ing on your Jared Diamond, or some obscure and biased anthropological “studies”. Actual evidence from the Kalahari, or the Amazon, shows (not the weasel “suggests”) that life for the noble hunter-gatherer indeed sucks. OTOH, increasing life expectancies in developed countries (take Japan, for instance) shows that civilization and technology do indeed make life better for all of us.
Who is supposed to stop the bank from freely buying every parcel of land on my block and artificially raising the price out of anyone’s range?
Since its a two-way street, you probably mean who is supposed to stop the owners from selling it to the bank, right?
Are we just supposed to wait for the market to bring the price of the land back down to its actual value?
What is this “actual” value, how and who calculates it? If the price is “artificially” out of range of anyone, what good is it for the bank? Seems to me this is not a “problem” worth “solving”.
I can’t believe you have adapted the nanny state dogma on civilization and technology. I don’t think your positions require it. There is no evidence to show we are living any longer than anatomically modern humans ever did. There is evidence to the contrary, however. I have only taken a few courses taught by UC Phd researchers (Anthropology was not my major). I don’t need to tell you it’s silly to compare life spans of technology’s victims to those of it’s wielders (see scientific consensus on causes of famine).
If you want to argue that growing technology is extending life spans, you also have to subtract the would-be remainder of its victims’ lives from the numerator of whatever average you are executing. Don’t forget to take into account “civilization” over its duration. You can’t just cherry pick years. As soon as a group of humans starts to assemble in ways that are different from 99% of human history, they are part of “civilization”. Remember that today is but a brief snapshot. Thanks to technology and civilization, even Japan’s current life expectancy can not be taken to be constant in the long run. That said, it had been roughly constant for 99% of human history, according to the fosil record, anyway.
Not if, but when the human race finally goes off the cliff because of technology, the lifespan will go to zero. Will civilization and technology still get the credit?