Dusty Bake Activate
Fukk your corny debates
Keynes can save us yet - Salon.com
WE LIVE LIKE GODS, and we dont even know it.
We fly across oceans in airplanes, we eat tropical fruit in December, we have machines that sing us songs, clean our house, take pictures of Mars. Much the total accumulated knowledge of our species can fit on a hard drive that fits in our pocket. Even the poorest among us own electronic toys that millionaires and kings would have lusted for a decade ago. Our ancestors would be amazed. For most of our time on the planet, humans lived on the knife-edge of survival. A crop failure could mean starvation and even in good times, we worked from sun up to sundown to earn our daily bread. In 1600, a typical workman spent almost half his income on nourishment, and that food wasnt crème brûlée with passion fruit or organically raised filet mignon, it was gruel and the occasional turnip. Send us back to ancient Greece with an AK-47, a home brewing kit, or a battery-powered vibrator, and startled peasants would worship at our feet.
And yet we are not happy, we expected more, we were promised better. Our economy is a shambles, millions are out of work, and few of us think things are going to get better soon. When I graduated high school, in 1975, I assumed that whatever I did, I would end up somewhere in the great American middle class, and that I would live better than my father, who lived better than his. Today, my son doesnt have nearly the same confidence. Back in those days, you could go off to India for seven years, sit around in an ashram, smoke pot and seek spiritual fulfilment, and still come home and get a good job as a copywriter at Ogilvy and Mather. Today kids need a spectacular resume just to get an unpaid internship at IBM. Our children fear any moment not on a career path could ruin their prospects for a successful future. Back in the 1970s, pop stars sang songs about the tedium and anomie of factory work. Today the sons of laid-off autoworkers would trade anything for that security and steady wage.
On the one hand, technology has made us all much more productive than we were 30 years ago. On the other, jobs have evaporated. Steel that used to require hundreds of men to manufacture now can be made with a dozen. A small businessman no longer needs to hire a secretary or a bookkeeper. Inexpensive software and a personal computer lets him do their jobs in a fraction of the time all by himself. The internet puts specialist knowledge that used to be almost impossible to find instantaneously on our laptops. The personal computer is doing to the office worker what the internal combustion engine did to the horse a century ago, making him obsolete.
Most of us are working harder, for less money and with no job security. My father and I both worked at the same large corporation but there was a difference, a difference determined by our respective eras: he was staff, I was freelance. When he got sick, the company found him doctors, paid his salary, put considerable effort into his recovery. Had I ever gotten sick, they would have simply forgotten my name. He yelled at the CEO habitually without any fear of losing his job. I mouthed off once to a middle manager and was never hired again. He had a defined benefit pension paid for by the corporation, the government gave me a tax break should I choose to save for my own retirement. The company had legal and moral responsibilities to him, which both he and they viewed as sacrosanct. All they owed me was a days pay for a days work. His generation gave their youth to a corporation, and the corporation took care of them in their old age. Today loyalty, if it exists at all, goes just one way. Many of my college buddies, are unemployed at 50, or earning less than they did ten years ago.
Most of us joke that we expect to fund our retirement by winning the lottery. Even investment bankers, who make more money than God, also work longer hours than galley slaves. Twenty-five-year-olds live with their parents; 50-year-olds borrow money from them. The conviction that each generation would live better than the last has evaporated. Emerging from the financial crisis wont be enough. For most of us, even the boom wasnt all that great. From 1950 to 1970, the typical American worker doubled his salary in real terms. Since then, even before the 2007 bust, inflation adjusted wages for the median male worker have actually gone down.
It is a paradox: our ever-growing productivity and our more insecure lives. Our understanding of economics is stuck in the past, in a world of scarcity, a world without advertising, where making things rather than selling them was the fundamental economic problem. Technology and the free enterprise system, to an extent that would amaze our ancestors, have solved much of the problem of supply. Our homes are more solid, our clothes more fashionable, our food tastier than our grandparents would have dreamed. In a world where even the residents of housing projects own more computing power than NASA did when they put a man on the moon, we cannot think that making stuff is the problem.
Supply side economics was invented by a journalist, a second rate academic, and two politicians (Jude Wallinski, Arthur Laffer, dikk Cheney, Donald Rumsfeld). Practical folk know better.
Ask any entrepreneur, and he will tell you making stuff, be it specialty steel, a low budget movie, saltimbocca a la romana, a collateralized loan obligation, a back massage, or an oil tanker is the fun part. It is selling it that keeps you up at night, breaks your heart, drives you into bankruptcy. That is why salesmen get paid more than engineers. Our problems today are purely problems of demand.
Picture an empty restaurant. The maître d standing by the till, faking confidence, trying to will customers through the door. The waiters sweeping nonexistent breadcrumbs from immaculate tablecloths. The sauces are prepped, the fish purchased at dawn glisten, waiting to be pan-fried. A couple approaches, peruses the menu, looks through the window, and walks away. The chef runs numbers in his head, calculating how much money he owes, how he can manage to meet his next interest payment. All that preparation, all that investment, all that energy and potential, for nothing. Until a customer decides to spend his money, it is for naught. Marx knew it. Keynes knew it. More to the point, every businessman knows it. Lack of demand is the Achilles heel of modern capitalism.
There were no recessions in Stalinist Russia or in Carolinian Europe, instead, just generalized poverty. Command and feudal economies were not nearly productive enough for supply to ever dream of outstripping demand. Every grain of wheat was consumed, every iron pot in use. The classic image of Brezhnevs Russia is a line of shoppers, outside a store, making a cue while not knowing what is for sale. Advertising is redundant in a world of scarcity, where consumers will buy everything that is up for sale. Supply, not demand, was the problem back then. A recession, by definition, is a lack of aggregate demand, an unwillingness of firms and households to consume as much as the society can produce. It is a sign of the incredible capacity of capitalism that our fundamental problem is we make more stuff than we want to buy.
The empty restaurant, writ large, is the predicament of the world economy today. No war, no hurricane has destroyed the productive capacity we had during the halcyon days of the boom. But consumers are not spending, firms are not hiring, households are paying off debt, corporations are sitting on piles of cash, banks are cautious about lending, and governments are hoping to reduce their deficits. Seven years after the real estate bust, five years after the collapse of Lehman brothers, four years after the recession first officially ended, we still find ourselves stuck with high unemployment, slow growth, a stagnant economy.
Progressive economists, led by Paul Krugman, have argued persuasively that what the world economy needs now is government deficit spending to put money in workers wallets, to stimulate consumption, to give the private sector a reason to invest and expand. This is the classic Keynesian solution, one proved by years of experience. Krugman tells us that the problem with the world economy now is lack of demand. Indeed, solving the problem of demand has been the essential capitalist dilemma of the past 80 years. As productivity rises, we can make more with the same level of inputs. Demand has to rise just as fast or the economy shrinks. For an economy to be at full employment, demand needs to equal the societys productive capacity. If it does not, then supply will shrink to meet demand and millions of workers will become redundant. To achieve full employment, we must find a way to instead push demand up to meet the economys productive capacity. Since the Great Depression, we have solved this problem of demand three different ways: war, rising wages, and debt.
The Great Depression shocked the capitalist world. The first real recession occurred in 1820, in the aftermath of the Napoleonic Wars, but until the 1930s, no downturn had never been so deep nor so long. Radicals hoped it might be the end of capitalism. John Maynard Keynes, for all the distaste he evokes amongst free marketeers, saw his task as saving capitalism from itself. According to conventional models, long-term unemployment was inconceivable. Most economists at the time believed that markets, if left alone would inevitably self-equilibrate. Unemployment would drive wages down until, at some certain level, workers would be so cheap to hire that once again, men would be put to work and growth could return.
Keynes saw the fallacy in this reasoning. He recognized that workers, after all, are also consumers. Drive down their wages, you also drive down their ability to purchase goods and services. Lowering wages was no panacea; it would just knock demand even further down. And since entrepreneurs base their decisions to invest and hire on whether sales are increasing, lower wages would lower sales, which would lower investment and so just increase misery without raising employment. It is a fallacy of composition. If I reduce my workers wages, I increase my own profits, but if everybody else also lowers the wages of their workers, sales will fall for all. From this misery some sort of equilibrium would emerge, but Keynes insisted it would not be a full employment equilibrium.
When Roosevelt was inaugurated in 1933, one third of the nation was ill-clothed, ill-housed, ill-fed because close to one third of the nation was also unemployed. Were they all working, they could also be clothed, housed, fed. Conventional economics, what Keynes called the Treasury View, believed that supply should be driven down to the level of demand. Keynes and Roosevelt figured why not drive demand up to the level of supply instead? Combining idleness with scarcity was criminal. Instead, demand should be stimulated to meet the economys productive capacity.
World War II finally ended the Depression and proved Keynes right. New Deal deficit spending was too small, too timid to restore the animal spirits of entrepreneurs battered by years of debt deflation. War is the least productive, most destructive of human activities with negative economic benefit, but the US government, by printing money and using it to hire workers knocked unemployment, which had been close to 20 percent in 1938 down to barely over 1 percent six years later.
It is important to understand that making bombs and blowing up cities is not what shrunk unemployment. It was the printing of money, the hiring of workers, the creation of demand by deficit spending. Had the US government spent as much as it had on fighting Hitler on promoting the arts, or building schools or even digging ditches and then filling them, it would have had just as beneficial an economic effect as did the war. Blowing stuff up is the opposite of investment. From an economic point of view, bombs and bullets are purely consumption goods, not nearly as beneficial as education or infrastructure. The reason defense spending has become the common means of stimulating demand is largely political. Conservatives who cannot stomach deficit spending for any other reason are willing to forgo their hard money prejudices in time of national emergency.
When the war ended, policy makers feared that without the stimulus of defense spending, the United States and the world would sink back into recession. The end of wars had been the cause of economic slowdowns in 1818, after the Napoleonic Wars, and in 1919, after World War I, and indeed, 1946 saw the US GDP shrink slightly. But the economy soon recovered and for the next 25 years, the world experienced the greatest growth in its history. The fundamental source of Golden Age growth was rising incomes that brought millions out of poverty and into the middle class. Their demand for luxuries that were fast becoming necessities created a mass consumer market, and corporations grew rapidly by satisfying it. In 1939, 25 percent of Americans didnt have running water, only 65 percent had indoor toilets, and none had television.
The rich grew richer during the Golden Age, but so did everyone else. Golden Age policies of progressive taxation, unionization, regulation are the opposite of what conservatives advocate today, but they were much more successful than the supply side policies that have dominated our more inequitable era. Inflation adjusted GDP growth was greater in the 1950s, 1960s, and even 1970s, than it ever has been since.
how many l's can the free market crowd take. You lost with austerity and Reinhardt rogoff.... 
