Book release
“From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics” by Thomas Palley, Cambridge University Press, 2012.
The U.S. economy confronts the prospect of extended stagnation. This book explores why. The argument is the Great Recession and destruction of shared prosperity is due to flawed economic policy. One flaw was the growth model adopted after 1980 that relied on debt and asset price inflation instead of wages to fuel growth. A second flaw was the model of globalization which created an economic gash. Financial deregulation and the house price bubble kept the economy going by making ever more credit available. As the economy cannibalized itself by undercutting income distribution and accumulating debt, it needed larger speculative bubbles to grow. That process ended when the housing bubble burst. The earlier post–World War II economic model based on rising middle-class incomes has been dismantled, while the new economic model has imploded. Absent change of policy paradigm, the logical next step is stagnation. The political challenge is how to achieve paradigm change.
Actually, the next bubble in the US is higher education (college loans). That will be the last bubble though.
Many accurate observations in the interview, and he of course is correct in his observations about the false assumptions of neo-classical economics as well as the rigidity of orthodoxy about the same.
The only thing that will get us to where we need to go is a mass social movement that in no uncertain terms and very serious tones herds the entirety of the political apparatus toward REAL solutions.
A couple of questions for all.
In America, if the Federal Reserve had not inflated and over inflated because it had no discount mechanism to balance the cost of production with the cost of consumption (after all the 5 cent candy bar of my youth is now like $.95), and had the American economy not been the only major industrial one still remaining after WW II and so the rapidly growing colossus that it was for about 30 years……what do you think would have happened?
I’m answering my own question.
It would have rapidly gone into a deflationary depression. Oh yes, we could have done jobs programs ad nauseum and also done what we’ve additionally done like become the world’s 800 lb. gorilla of weapons manufacture, but without these its in the dumper.
Second question.
The “Golden Age” of an American middle class occurred during this same brief approximately 30 year period. Will the size and character of the middle class not revert to its much smaller “norm” and the true character of general economic conditions for the mass of the population under a capitalist economy not become apparent?
Again the answer. Without a cost free way of increasing individual purchasing power….it will become a permanently bleak and austere reality for the vast majority.
Both capitalist and socialist economic theory are pieces of you know what. A genuine and actual third way, not palliative “fixes” and mere reforms are what is necessary if we are to have anything resembling economic democracy.
That genuine third way is the Distributive economic theory of Social Credit.
I generally have about the same opinion of economists as I do preachers, and that is that they are paid liars of very mediocre intellect. (For a great article on the deplorable state of the economics profession in the United States, a great read is Christopher Hayes’ “Hip Heterodoxy” http://www.chrishayes.org/articles/hip-heterodoxy/ ) But there are some quite remarkable exceptions, and these exceptions are what make economics and theology interesting. I would say Thomas Palley is one of these exceptions.
That said, however, I wonder if Palley’s argument would not be greatly enahanced by a multi-disciplinary approach.
For instance, historians like Carroll Quigley in The Evolution of Civilizations point out that the “destruction of shared prosperity” is a characteristic of societies and civilizations in decline. He also points out that the crafting and dissemination of intellectually and morally corrupt ideologies, such as neoclassicism and neoliberalism, is a trait of these societies. “The vested interest encourage the growth of imperialist wars and irraitonality,” he says, “because both serve to divert the discontent of the masses away from their vested interests.”
A thorough discussion of the way in which “pathocrats” either fabricate pathological ideologies or take existing ideologies and vitiate them in order to give moral and intellectual justification to the “destruction of shared prosperity” can be found in Political Ponerology, a book by the Polish psychologist Andrew M. Lobaczewsi.
The Russian evolutionary biologist and mathematician Peter Turchin also speaks of the fall of empires in terms of the “destruction of shared prosperity” in War and Peace and War and Secular Cycles, which he co-authored with another Russian scientist, Sergey A. Nefedov.
The political aspect of neoliberalism is also quite ugly. A great deal of violence and police brutality is necessary in order to implement and enforce it. Greg Grandin recounts the shift towards neoliberalism in Chile, which I suppose was the first place where neoliberal theory was put to the test:
http://www.counterpunch.org/2006/11/17/the-road-from-serfdom/
The neoliberal project commenced in Chile with the military dictatorship of Augusto Pinochet, who was enthusiastically cheered on by Hayek and Friedman. As the Mexican write Carlos Fuentes noted in The Burried Mirror:
“My personal preference,” Hayek told a Chilean interviewer during one of his several visits to Chile at the time, “leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism.”
Since then, the 39-year old history of Neoliberalism-in-practice (as opposed to in theory) has followed a similar trajectory everywhere it has been tried.
Christian Parenti has done some excellent reporting on the creeping police state in the United States which has become necessary in order to enforce neoliberalism:
http://vimeo.com/23346020
And Arundhati Roy gives us the current rundown on the state of neoliberalism in India as the Indian government is poised to liquidate all the überzähligen Essern, superfluous eaters, whose greatest sin is to have lived on top of India’s great forests and mineral wealth.
Roy, just like the Polish psychologist Lobaczewski, also speaks of the grotesque debauchery of language and ideology by the neoliberals:
Glenn,
Interesting and enlightening references as per usual.
I share your general opinion of preachers. 99.9% of them are simply culturally hidebound apologists for the status quo. The Prosperity Gospel is a glaring example of such.
And yet I’m still convinced that genuine spirituality can be a guide, in fact THE guide which must infuse our systems. But it must be a guide which while tolerating dogma must itself be stripped of all attending dogmas. C. H. Douglas referred to Social Credit as “the policy of a philosophy.” That philosophy being the PRACTICAL ideas, values and experiences of Christianity.
Faith,as in confidence, hope, love and a sense of grace…..these are available experiences to human beings……and hence valid ideas and values upon which systems and their policies can be based. And if they are not based on ideas and values that are consistent with these they must be changed….if we want truly stable systems…..that enable the best in Humanity instead of primary purposes like profit or work which are quite easily corrupted by the root power of the temporal world, namely finance.
Any philosophy is subject to misinterpretation and flawed thinking, and Social Credit of course is no different in this respect as a smallish number of its adherents have glommed onto everything from literalistic Christianity to the dangers of flouridation to an idiotic anti-semitism. I guess what I believe in is the Zen of Social Credit.
An aside: to critique Jewish thought for its overly abstract and legalistic tendencies should not necessarily be associated with anti-semitism. Philosophical critique does not equate with pogroms.
A philosophy must ultimately be judged on both its workability and its relevance to human experience. Confidence, hope, love and a sense of grace pass that test because of both their individual power and their universal availability. Man is by his nature an evaluating being. Better that he evaluate based on a higher realism and not some lower idealism. And so alignment of policies with the above values and experiences ought be the goal.
As I am like to offer up Biblical quotes:
“….and there is nothing new under the sun.”
However, the GENUINE experiences of god, and the fruits of such experiences, is eternally available and makes the old, new; and so are the appropriate basis for both personal work and systemic policy.
Am I guilty of mystical economics?
Actually yes, if you mean the experiences beyond the words that are posted above.
But I prefer, and think a more accurate description is, Higher Realism Economics. Its policies are based on the proper and most basic beginnings and so enable and promote the Good instead of inhibiting it as does neo-classical economics of both capitalist and social democratic flavors.
@Steve Hummel
I didn’t mean to come down too hard on preachers, and certainly not spirituality. Gandhi, Martin Luther King, Reinhold Niebuhr, Einstein and Havel are certainly included in my pantheon of the greatest human beings who ever walked this earth.
For Gandhi, Marthin Luther King and Niebuhr “truth” was God. In the essay “Politics and Conscience” Havel, a secular man, wrote in terms that were quite different yet conveyed a similar meaning:
I also believe Jonathan Schell summed up the never ending contest between spiritual power and coercive power quite beautifully in The Unconquerable World:
I’m certainly not of the opinion that there is no canon to the cosmos. In fact it could just as easily be true as the opposite. Enchantment is a state of mind the same as disenchantment. But the power to move and effect Man that enchantment has seems to indicate it is plugging into something far deeper and stronger than its counterpart. We moderns have the disadvantage of being either inhibited or cut off altogether from this power by the hubris of science. And all too often its by choice.
This is speculation of course, but to the question Why evolution? does it not follow that it is because there is an intention behind the cosmos? As I have said here before to me its largely or even totally a BOTH/AND world. A monism.
I can see where BOTH evolution/random selection AND design are possible. Matter and energy are so dispersed that random selection is the process, but the reason for evolution itself and for our ascent is possibly because when self awareness, intelligence and the ability to experience faith, hope, love and grace were selected….they stuck…..because that is the what and why of the cosmos.
Dear All,
One aspect of the “current” economic crisis that strikes me again and again when listening to well-heeled professional commentators is the assertion (stated or implied) that the “current crisis” began in 2007.
As someone who graduated in 1989 and has yet to earn over the median average UK salary and who in fact has spent most of the last twenty years under or simply unemployed this clearly (to me at least) demonstrates just how isolated even well intentioned, and reasonably well informed commentators like Steve Keen in reality are. I suppose that in part because of my own personal experience of being brought-up in Edinburgh, Scotland I was saying to anyone who would listen a quarter of a century ago that you stood a much better chance of obtaining employment as a non-graduate and after reading Andre Gorz I new why this was the case.
I would strongly recommend that anyone who really is interested in understanding the route causes of today’s economic woes consults the above. The last time I did was well over twenty years ago but his central theme that in an ever more “capitalised” economy human labour is inexorably marginalised is even more prescient now as it was then. Simply put, the central mechanism of capitalism is wage labour + capital = profit + wages (i.e. effective demand). Mechanisation/technological advance systematically undermines that process and there is nothing, I repeat nothing, not Keynesian stimulus, Neoclassicism, or any other macro economic mumbo jumbo that will stop this process. Sure you can expand the banks assets by QE, or send every household a thousand dollar cheque or alternatively follow the “Austrian” yellow brick road, but in the end they all lead to nowhere, because they fail to address this fundamental dynamic.
Much as I agree with much of Prof Keens’ analysis, and for the record Steve you and the chosen twelve weren’t the only ones who say this coming – I can provide a raft of witnesses who will attest that I was boring them with my predictions of doom many, many years before it even popped up on your radar, he, like the economics profession as a whole know nothing or as close to as makes no difference about actually how firms really operate at the micro level. I worked for many years in the Scottish wine trade for a procession of idiots that could have come straight from the pages of Dickens. Now that is bad enough, but in an sector that was going down the tubes anyway it makes no odds, no what was really interesting about my experience in the trade was the access it gave via corporate wine tastings to the corridors of financial power at RBS, HBOS and Standard Life. Now I’m still UK based so for legal reasons I’ll have to watch what I say here, and after a bottle and half of Aussie pinot that’s not as easy as it sounds, but the idea that these guys (by which I mean the level just beneath board level) should have been allowed anywhere near a couple of hundred thousand pounds let alone several billion is CRIMINAL. Enough said.
Here is a post I just made over on Mish Shedlock’s forum in response to Ben Bernanke’s testimony before Congress today:
Simultaneous bailout for Banks, debtors and savers is the sane and wise solution. The Banks don’t want it because it downsizes their portfolios, momentarily breaks up their monopoly on credit and exposes the fact that a dividend paradigm is actually the solution to their enforced loan paradigm for consumer finance. The purists and otherwise hypnotically orthodox don’t like it because they’d have to actually think a new thought instead of simply spouting orthodoxy. BZZZZZZT! Okay, back to the Matrix with you guys. Meanwhile those of us who prefer ACTUAL reality will be left to deal with the Machines of Mammon and Leviathan.
And here is a little ditty I wrote awhile back:
MAMMON AND LEVIATHAN
We are Mammon and Leviathan; we rule this rock, this prison.
Our ways we make mysterious,
Our tracks make the tracker delirious,
We are clever, we are devious, indeed, that is our mission.
With money and with power,
We tempt and blind and purchase,
Not only things and governments,
But Minds and Souls sent on endless searches
For every little swirl and pool of filthy lucre
While our rule is secure into the future
And authority neither lost nor mentioned,
Minority rule is our first rule enforced without question.
We twist and turn and evermore entangle
Congresses and Parliaments in a mortifying fandango
Which keeps us safely and securely ensconced
From view by both the smart and the merely entranced.
Oh Orthodoxy, Oh Habit, Oh Living itself!
With Ye our rule is never chanced,
Its festering boil shall not be lanced,
Ever arising even after the pestilence of War and Wars
Or the confusing burdens of collapse’s chores,
We know not Faith, nor Hope, nor Love,
And Grace is but a fraud,
We rule with stick and bribe and well timed nod
What do we fear of the experiences of God?
And Freedom? Oh yes we’ve heard of that,
Our noises and our mirrors,
Deployed in seconds flat
Out do that puny concept,
For enslavement, slaves have clapped.
We fear but two things and they are very rare,
A spark of clarity in a focused one who dares
To fight for right against our usurpations
And monopoly, yet never at us stares,
But rather speaks with equal portions of
Drama, indignation and a call for all,
To be aware and care.
c copyright
May 2012
Steve Hummel
@Steve Hummel
The theories of the materialists have a great deal of explanatory power. And here I’m not talking about materialists like Richard Dawkins and Daniel Dennet and their nonsensically reductionist quackery, but those like David Sloan Wilson and Stephen Jay Gould.
However, I’ve noticed that even they lack credible explanations for two phenomena:
1) Where did that original spark of life come from that evolution would perform its wonders upon?
2) The fact that humans exhibit other-interested behavior not only to those within their own group, or even within their own species, but to almost all of the universe, as Paul Zack explains here:
http://thesciencenetwork.org/programs/beyond-belief-candles-in-the-dark/paul-zak
Martyn Thorpe said:
We could easily modify your equation to account for the effects of technology to the following:
wage labour + capital + technology = profit + wages (i.e. effective demand)
But this has no effect on the simple and inexorable logic of capitalism, and that is that if profit goes up, wages must necessarily go down. Furthermore, who could have missed the fact that over the past 45 years the capitalists have pulled out all the political stops to make just that happen.
For me, all this talk about technology causing the maldistribution is nothing but a red herring.
@Martyn Thorpe
We could also modify your equation to the following, which is even less reductionist:
wage labour + capital + technology + trust + cooperation = profit + wages (i.e. effective demand)
Monopoly capitalists, typical of all characteropaths, always seek to eliminate trust + cooperation from the equation.
@Steve Hummel
Wonderful posts Steve, but your, “mystical economics,” fails on each count; after all, what is economics but the relationship producer and consumer.
Attempting to understand macro-economics on the level it is practiced by humanity on this planet is like attempting to simultaneously follow the conversations of one hundred thousand hyperactive thirteen-year-old girls.
Put the, “mystical,” in your economics by taking the words out.
@Martyn Thorpe
You have to admit, though, the ruse of the last several decades will spawn the plots of some pretty incredible films in years hence! People simply won’t believe it was possible.
Human beings [on the whole] just do not play well together, never have and probably never will.