I’m sure Marx, back in the 19th, wrote of “capital” and “capitalists” – never of “capitalism”?!
[quote=“septimus, post:10, topic:658125”]
[ul][li] In a finite-sum game, the quest of powerful corporations for continued growth will come at the expense of labor or smaller companies.[/ul][/li][/QUOTE]
I think there are a few dynamics that tend to be overlooked. The quest for growth in the LES reaches a point where the primary goal is maximizing profitability by any means. What is achieved by maximizing profitability? More usable capital becomes a means to affect/effect government policy to the advantage of the business(s) in question. There appears to be some sort of numeric threshold where money transitions from being a medium of exchange to a means for wielding power over people and society. This can be a positive thing, but when the economic engine is driven by avarice, this generally tends to not be good for society.
“Productivity” is maximizing output with minimum input. Workers represent an input expense that needs to be reduced to improve productivity. In the broader scheme of an economic system, increased net productivity tends to throttle consumption by reducing the amount of capital available to consumers, meaning there is a peak (Laffer curve type thing) where increasing overall productivity creates a downward pressure on revenues (this certainly varies by industry, but I refer to the whole economy).
The idea that more is better has limited application and should not be blindly used as the basic principle for measuring a good economy.
I said tendencies toward monopolies. More of everything is ending up in the hands of a few owners. They don’t have to reach a true monopoly to create the situation where people are no longer willing to keep feeding them. That may take a long time in our economy, or sooner that you think since one of things the select few own is the government.
I find the OP to be impressionistic and vague. It’s not surprising that the thread is distributing itself all over the map.
Maybe so. But you haven’t really specified what the problem would be with a moderate productivity growth economy. I can think of a problem incidentally: low nominal GDP growth can get you in trouble during recession when wages are sticky in the downwards direction. But that problem is easily solved with slightly higher core inflation, in the 3-4% range.
Um you’ve demonstrated varying productivity across sectors. But computerization’s effects on productivity have been pretty broad (though low during the 1980s- early 1990s). I suspect I could get some better evidence at the BEA, but methinks you are making the more incredible claim
No just the ones making up the bulk of the OP, i.e. those related to the business cycle. Respectfully, you might think about reviewing your intermediate macroeconomics.
TriPolar: Monopolistic and competitive tendencies vary across sectors. Agricultural production tends towards competition while there also exist natural monopolies such as electricity distribution. Such natural monopolies are not due to government fiat but rather increasing returns to scale.
More generally though, most industries are oligopolistic. That is they tend to have a handful of competitors as opposed to thousands (perfect competition, agriculture) or one (monopoly, electricity distribution). There are plenty of examples of oligopoly: they include most consumer goods industries.
I’ll lay down a marker here. Japan at last is applying textbook macroeconomics. I predict that it will work. Abenomics is working: Shinzo Abe’s policies are leading the way to recovery.
I already weighed in on that above and posted the same article link. You really reading here? 
The problem with Japan is defining what “it worked” would mean for the reasons I said above.
I already talked about it in the OP. I am theorizing that the LES, because its functioning is based on getting a return on investment, would experience malaise in anything but an economy in which the population and/or productivity and thus consumption is growing. I cited Japan 1989 onward, which had all the “stuff” a society could want to succeed but nevertheless has had a lot of problems.
Now, I can’t prove that that’s the case, but I invited people to demonstrate how the numbers could add up. Pretty much all I’m hearing from those defending the LES is, “Hey, yeah, it would work out. No problem.” Well, OK then, issue solved!
Aw man, thanks for that advice.
My main point is not about the business cycle, although I did note that the LES is prone to severe and quick breakdowns.
I am pointing out that companies are basically required to grow in a way that is not sustainable without a certain level of population growth.
You’re right, it will stop making sense. But it may be that the malaise will set in even before we would reach the steady-state level. I think Japan’s economy reached artificial “maturity” sometime after the bubble burst. There was still a lot more work to do that wasn’t getting done, but money could not find its way toward doing it. For example, most households today in Japan do not have a dishwasher, despite the fact that this has been standard equipment in the US since the 50s or 60s. Under-the-counter models virtually don’t exist. Beyond that, you have a really bad housing situation. It’s supposed to be a wealthy nation, but most people don’t even have what we would consider decent closet space.
Although it’s not crucial to my main point, what actually happens in our economy is that one company is overvalued after another. One fails, whoops, the stock goes down, the latest set of investors lose, the execs float off on their golden parachutes, and then another business rises. Sure, it’s a good thing for a better business to succeed; free markets are good in that way. But when a big business fails, it is a big blow to the economy. The business’s capital is often left unused, the workers are displaced, the suppliers are not paid, the investors lose their investments, and so on.
Look at Sears. This company was like God until the early 1980s. It represented a pretty effective way to distribute goods. If you were a kid in the 1970s like me, the “Wishbook” Christmas catalog was the thing you were looking at to pick out what you wanted. Why not invest in the stock? It can only go up.
Sometime in the 1980s, the wheels came off the bus, and now Sears is a disgraced vassal to another fallen hero, K-Mart. Really, at a certain point, the most efficient thing to have done is just to liquidate the company and be done with it, but that’s not how these things ever work. When a big company dies, it’s death is often quite inefficient. Execs, investors, and any other stakeholder is going to keep the thing on life support.
Meanwhile, Wal-Mart is on the rise and everyone’s like, “Invest in that–it’s a winner!” So we have all this churn whose net value-add to the economy is dubious.
Not to mention that the answers to most of these questions should have been covered in his business school classes.
So your assumption is that orthodox economics at this point understands all the issues and can solve all the problems?
I don’t share that view in the slightest. I think our stage of economic knowledge is right around where chemistry was in 1800.
I’ll focus on Japan.
The economic and social malaise ran very deep in the US from 1929-1939. Then economic stimulus in the form of WWII brought full employment and the malaise went away. The causes may have allegedly run deep but the solution was straightforward. That happens sometimes.
I don’t doubt that the price of land might fall relative to wages. I do doubt whether that is automatically a terrible thing. It might justify my 3-4% inflation target though. Japan has set a relatively mild target of 2%.
Yes, because the economy has sucked.
No, I’m saying that liquidity traps and countercyclic policy are fairly well understood, the politics of them less so, and the problem of taming financial markets is as yet unsolved. But the OP doesn’t make distinctions like this.
TBCF, chemistry involves working with things the act in what we have come to find are predictable ways, economics involves constituents which behave erratically and unpredictably, often even at the macro level. It is not entirely clear whether economics, or any social science, will ever achieve the consistent results we see in the physical sciences. Even the highly weird QCD is more predictable.
Remember what I said about “capital destruction” in the OP? This is exactly the kind of thing Marx talked about. It’s easy to rebuild and get the return once the baseline has been lowered, in this case in Japan and Europe. In any case, whether Keynesian stimulus can work or not in a downturn–sure it can, in some cases. But the argument isn’t whether the government can do stuff to fix the economy. The argument is whether under the LES we will always get malaise when population and/or productivity growth, and hence consumption growth, fall below a certain level.
The whole question here is why has the economy sucked and must it always suck in such a situation with LES structures in place?
Not sure what your claim is. Are you saying we know how to keep the economy running smoothly at all times but merely fail to do so because of politics?
I don’t buy it. Such understanding must be proven through action, and since the beginning of the Industrial Revolution we’ve had a series of panics, a Great Depression, many recessions, and now the Great Recession. Japan, a society with perhaps more advantages than any other (stability, education, low crime, high work ethic) has had a stably bad economy and widespread social malaise since 1989.
You seem blase about the whole thing: Oh, well, we understand how these things work, no biggie. But I see a lot of people getting hurt and even a considerable amount of pain for The Powers That Be, whom you’d think would want to avoid pain for themselves if not for others. Yes, free markets and other elements of the LES have done great good over the past 250 years. But if you think things are working just fine, I must beg to differ.
Good point.
I read op-ed and other pieces on economics from both sides of the political fence, and often the writers opine with such confidence, as though everything were understood and all we have to do is what they say, no more or less.
I don’t believe our understanding is very good. In fact, I don’t think we even know what we don’t know yet. It may be that, in the future, we realize we can only do so much to control things, but I should hope that that realization would be based on a firmer grasp of economic science.
Re the use of the word “capitalism,” see Wikipedia:
It was used by Marx, but not much, and wasn’t used in a positive sense (much at all) until the 20th century. The point I wanted to make is that no one in the 18th or 19th century was saying, “Let’s create this great new system called ‘capitalism.’” That’s why I prefer “LES” when I critique the thing.
The idea of creative destruction is a core component of capitalism, this allows companies to grow as others fail or shrink. It is not a stable environment and should never be considered one, this is why I don’t see how we can call depressions etc a “failure” of capitalism.
Also the view that more people are poor today than before is simplistic and plain wrong. Yes maybe in your backyard they are but when looked from a macro perspective the world has never been better off.
If anyone comes up with a better system then I’ll jump on board but until then “Viva La Capitalism”.
You are OK with the Great Depression, when unemployment was over 30%, and the whole thing lasted over 10 years?
What would you not accept as an outcome of the LES?
Oh, did I say that? Please quote that. That said, you do know that wages have stagnated for decades now, right?
Are we better off than in 2007, for example?
Yes, well, we are talking about how to make the current system better. You think it’s perfect as is?
I make a differentiation between “cutthroat capitalism” and the kind of capitalism/socialism amalgam that I call “capitalism with a human face”. (A tip of the hat to Dubcek of Czekoslovakia who favored what he called “communism with a human face”.)
The former will last, as tripolar said, until the people rise up and destroy it. That is the inevitable result of more concentration of economic power into fewer hands, until you have either open monopolies or sufficient collusion between “competitors” to create defacto monopolies. Eventually one group of people ends up running everything, including the government incidently.
The latter, especially in a democratic state with a reasonably informed electorate, can last indefinitely as the collective wisdom of society deals with those areas that have gotten out of whack. (This doesn’t happen overnight however, and the periods of adjustment can be pretty nasty.
What people have a hard time wrapping their heads around is that with computerization, automation, and various other factors viewed as “improvements in productivity”, whole classes of jobs have been rendered obsolete. To put it simply, in non-economist terms, we don’t need as many folks to keep the wheels turning as we used to. But the rub is that even though those folk aren’t needed as producers, with the slim margins that many businesses operate at, they’re still needed as consumers. Now some of those folks could eke out a marginal existence as low-level “entrepreneurs”, but how many cleaning ladies, pet-sitters and drug dealers do we need? In olden days, the surplus labor force was simply allowed to starve, but we, as a society, have decided that’s not who we are.
You haven’t put forth any reasons why this would occur. Hey, it’s possible. We might always get malaise within 4 years of heightened sunspot activity. That’s a testable proposition. I just can’t work out any empirical element in the OP.
Upthread. Failure to apply conventional macroeconomics.
I’m saying that extended slumps like the one we have now and the one that Japan has experienced are entirely avoidable. Recessions owing to supply shocks are not. Recessions due to Fed error are to be expected as well - but there’s no reason for an extended slump. And the prevention of financial crises has been studied but is much less clear.
Business cycles were shallower on the whole from 1945-2007 than they were during the previous 100 years, though the GDP data exaggerates this effect somewhat. (Also, you are correct that agrarian societies operate a little differently than industrial ones - we’d expect aggregate supply to be somewhat steeper.) Anyway, the basics were understood in 1955 after Samualson’s textbook was widespread. The first systemic treatment of the macroeconomy was only introduced in 1935, and systematized by the end of that decade.
No, I’m saying that wooly thinking is counterproductive. We have some pretty serious challenges, most dramatically a failure regulate greenhouse emissions, but also a failure to apply textbook macroeconomics or address tendencies towards oligarchy. Waving your hands about systemic failure isn’t especially helpful.
Yes, I accept it as an outcome of LES and corporate greed.
Unemployment rates in the USA rose to a high of 25%, even if I accept your 30% view it was not for the entire time.
Yes as an Australian we were hit probably the hardest by the GD in the western world due to our reliance on commodities and other exports but again we rose to 29% in 1932 and that was our peak, we gradually recovered on the sheep’s back as we like to say.
It is also fair to say that at this time and before poverty was an accepted part of our western society.
Again micro view maybe but macro view is that living standards across the world have improved.
Depends on how you look at, I earn nearly twice as much as I did in 2007. So again micro vs macro.
No nothing is perfect but I would also argue that we haven’t had another GD in 90 years something must be working?