Monday, February 15, 2010

Heavy lifting--a collection of thinking on political economy

As we watch the the economic crises facing Greece--and by extension, those countries with Greece's problems which pretty much includes all of us--we are reminded again how important the basic economic questions really are.  And we are reminded just how intellectually bankrupt the economics profession really is.  They have NO solutions for these problems--they have been trained to think that asking the basic economic questions is literally unthinkable.

So here we find ourselves facing these life-and-death economic problems and the people paid to have answers are hopeless and helpless because their expertise in economic issues has been reduced to the ability to do "fast algebra".  They are completely lost when it comes to public policy issues because they literally know nothing about any significant issues save the golf-locker-room nonsense they spout.  It is literally pathetic.

However, our economic problems are not new.  They are almost identical to the dilemmas of the 1920s and 30s.  So, unlike our great-grandfathers, we don't have to reinvent the wheel.  Unfortunately, all the rational folks have long since been run out of the economics profession--which pretty much explains why there are about 40,000 practicing economists and about 10 of them have any on-record predictions of the current economic mess.  So the only folks worth attention these days are probably historians first, and economic theorists second.  And of these folks, the Marxists and Austrian School zealots can be safely ignored--they HAVE been discredited.
The Retrogression
New Phase, Not Just Another Recession
It is becoming increasingly clear that the financial meltdown of 2008 and the subsequent economic contraction that continues to this day represent more than just another recessionary cycle. More importantly, they represent a structural change, a new phase, the phase of the dominance of “finance capital,” as the late Austro-German political economist Rudolf Hilferding put it. (If you haven't read my take on the difference between industrial and financial capitalism, now might be a good time.)
Although the current domination of our economy by finance capital seems new, it is in fact a throwback or “retrogression” (as financial expert Michael Hudson puts it) to the capitalism of the late 19th and early 20th centuries, that is, the capitalism of monopolistic big business and gigantic financial institutions. The rising economic and political influence of powerful financial interests in the early 20th century led a number of political economists (such as John Hobson, Rudolf Hilferding and Vladimir Lenin) to write passionately on the ominous trends of those developments—developments that significantly contributed to the eruption of the two World Wars and precipitated the devastating Great Depression of the 1930s, by creating an unsustainable asset price bubble in the form of overblown stock prices.
The harrowing experience of the Great Depression, followed by the devastating years of World War II, generated momentous social upheavals and extensive working class struggles worldwide. The ensuing “threat of revolution,” as F.D.R. put it, and the “menacing” pressure from below prompted reform from above—hence, the New Deal reforms in the US and socialist/Social-Democratic reforms in Europe. Combined, these historic developments significantly curtailed the size and the influence of big business and powerful financial interests—alas, only for a while. more
The New Deal in Reverse 
How the Obama Administration Ended Up Where Franklin Roosevelt Began 
By Steve Fraser
On March 4, 1933, the day he took office, Franklin Roosevelt excoriated the “money changers” who “have fled from their high seats in the temples of our civilization [because...] they know only the rules of a generation of self-seekers. They have no vision and where there is no vision, the people perish.”
Rhetoric, however, is only rhetoric. According to one skeptical congressional observer of FDR’s first inaugural address, “The President drove the money-changers out of the Capitol on March 4th -- and they were all back on the 9th.”
That was essentially true. It was what happened after that, in the midst of the Great Depression, which set the New Deal on a course that is the mirror image of the direction in which the Obama administration seems headed. 
Buoyed by great expectations when he assumed office, Barack Obama has so far revealed himself to be an unfolding disappointment. On arrival, expectations were far lower for FDR, who was not considered extraordinary at all -- until he actually did something extraordinary. 
The great expectations of 2009 are, only a year later, beginning to smell like a pile of dead fish with new rhetoric -- including populist-style attacks on villainous bankers that sound fake (or cynically pandering) when uttered by Obama’s brainiacs -- layered on top of the pile like deodorant. more
Globalization Is Killing The Globe: Return to Local Economies
by Thom Hartmann | February 9, 2010 
Globalization is killing Europe, just as it's already wiped out much of the American middle class.
Spain and Greece are facing immediate crises that many other European nations see on the near horizon: aging boomer workers are retiring with healthy benefit packages, but the younger workers who are paying for those benefits aren't making anything close to the income (or, therefore, paying the taxes) that their parents did.
Globalists/corporatists/conservative "free market" and "flat earth" advocates say this is a great opportunity to cut benefits for the old folks (and for the young folks in the future), thus bringing the countries budgets back into balance, and this story is the main corporate media storyline.
But it overlooks the real issue (and the real solution): how globalization is killing these nations' economies and what can be done about it.
From the days of Adam Smith, classical economics pointed out that manufacturing and extraction are the only two ways to "create wealth."
"Wealth" is different from "income." Wealth is value, which endures at least for some time. Income is simply compensation for work. If you wash my car for $10 and I mow your lawn for $10, we have a GDP of $20 and it looks like we both have income and economic activity. But no wealth has been created, just income.
On the other hand, if I build your car, I'm creating something of value. And if you turn my lawn into a small farm that produces food we can all eat, you're creating something of value. Not only do we have an "economy" with a "GDP," we also have created wealth. more
The Goat in the Clearing
That was quick. It seems only yesterday – in fact it was only yesterday - that we had Barack the Populist flailing away at the banks. He didn’t run for office only to end up "helping out a bunch of fat cat bankers on Wall Street", he told CBS’s 60 Minutes in December. Early, he’d talked hotly of the obscenity of the bankers’ bonuses. In January he was shaking his fist at the mighty powers of Wall St: "If these folks want a fight, it's a fight I'm ready to have." In his State of the Union speech he dealt the bankers another couple of glancing blows.
BUT now it’s Valentine’s Weekend and love is in the air. On Friday Bloomberg Business Week featured Obama telling two Bloomberg reporters he doesn’t begrudge the million-dollar pay-outs made to two of Wall Street’s most powerful men because, after all, “there are some baseball players who are making more than that.”
What about JP Morgan chairman Jamie Dimon ($16.1m plus a $1m salary) and Goldman’s boss Lloyd Blankfein ($9m)? "I know both those guys; they are very savvy businessmen," the President said. "I, like most of the American people, don't begrudge people success or wealth. That is part of the free-market system." more
Which Way to the Bastille?
Fri Feb 12th 2010, 10:29 AM
By David Glenn Cox
Who do we throw our shoes at now? Does Wal-Mart have everyday low low prices on torches and pitchforks? Made in China of course, but the question is a serious one, what are we going to do, in this country, about a government that refuses to acknowledge our distress?
Yesterday I read that there are almost 20,000 homeless teenagers in New York City alone, so how many is that nationwide? Colorado Springs is turning off streetlights and sold their police helicopter and fired the pilot and mechanic. The default rate on jumbo mortgages is near 10%. Jumbo mortgages are at least $250,000 and ranged up to $729,750 but the stimulus bill reduced it to a paltry $625,500. Big fish with big loans and they’re going belly up just like the rest of us.
These economic hard times are not isolated; they are widespread and growing daily. Financial experts have said, “Thank God for the census hiring thousands.” Except census takers count households and we have millions that have no house to hold. Asking them if they have a high speed Internet connection or how many toilets they have misses the mark at this point. At this point the questions should be: are you getting enough to eat? Are your children attending school; do you have money to wash your clothes?
They don’t ask us and won’t ask us because they won’t like the answers, so it’s best to just ignore us. The President, in his State of the Union Address, announced a new jobs bill. Oh goody! More god-damned tax cuts that made the last stimulus so successful. Let me ask you, if I offered a 50% tax cut on the purchase of a new Ferrari or Rolls Royce, would you buy one? You won’t buy what you can’t afford no matter how big the tax break. Employers won’t hire workers to drive a truck if they don’t have orders to deliver, even with a tax cut. more

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