brief overview of Michael Hudson’s political economy analysis

Killing the Host: How Financial Parasites and Debt Destroy the Global Economy (2015) by Michael Hudson

In these times we need to shine the light in the right place. The problem is not just the virus but the underlying economic crisis that many were predicting before the virus and which obviously is further greatly exacerbated by the virus. Who understands those underlying economic issues?

The twelve themes of this book:
1) Tangible, productive or real economy v. FIRE (Finance, Insurance and Real Estate), not productive
2) Banks don’t finance tangible investments, they do finance the FIRE sector
3) Asset price inflation (prices of home, office buildings, companies increase in the growth phase)
4) Debt deflation (at the point when debts can't be paid, the economy shrinks)
5) Austerity makes things worse
6) Debts grow exponentially (compound interest)
7) Debts are not paid, individuals, companies, governments sell off or forfeit their assets
8) Bubble economy sustained for a while by easier credit but led to 2007 crash
9) Banks and bondholders oppose debt write downs to bring debt in line with earnings and historical asset valuation
10) Financial sector, the One Percent and IMF, backs creditor friendly oligarchies and military dictatorships
11) Financial sector, not governments plan the economy, since 2007 they have seized political power
12) Support the Classical economic policy of taxing and de-privatising economic rent and asset-price (“capital”) gains

I'm part way through reading this book. The above is a thumb nail sketch of the contents. I'm struck by the straightforward, relative simplicity of Michael Hudson's analysis. The non productive FIRE sector took over the American economy after the 2008 Great Recession, the One Percent seized political power. Obama went along with it and bailed out the Financial sector with trillions of dollars. Since then the real economy has continued to stagnate even though the stock market appeared to recover that was just another bubble.

Hudson argues that if the mortgages of the 10 million or so victims of the fraudulent loans (subprime mortgage crisis) had been written down and instead the perpetrators of those loans punished then the economy would be in much better shape today. He taps into the inside story of the 2008 power brokers (Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself (2012) by Sheila Bair) to illustrate that part of his argument.

Even though 2008 is a flashpoint, the book provides a historical overview of the centuries old struggle between the productive sector and financial sector for political control. I think Hudson would say that Marx volume 3 is more relevant to the current situation than Marx volume 1. It is both a relatively simple yet powerful analysis. I can't fault it.

Good review by John Repp here

Killing the Host chapter names here (scroll down)

Michael Hudson's blog

Related:
in April Roubini predicted a Greater Depression

in April, Roubini predicted a Greater Depression

In April, before he wrote The Main Street Manifesto, Nouriel Roubini predicted a Greater Depression. His analysis has induced me to resume study of political economy. I'll list the books I am reading at the end. Meanwhile here are Roubini's 10 reasons:

The Coming Greater Depression of the 2020s
April 28, Nouriel Roubini

1) Debt – public and private
The first trend concerns deficits and their corollary risks: debts and defaults. The policy response to the COVID-19 crisis entails a massive increase in fiscal deficits – on the order of 10% of GDP or more – at a time when public debt levels in many countries were already high, if not unsustainable.

Worse, the loss of income for many households and firms means that private-sector debt levels will become unsustainable, too, potentially leading to mass defaults and bankruptcies. Together with soaring levels of public debt, this all but ensures a more anemic recovery than the one that followed the Great Recession a decade ago.

2) Health care in aging societies
A second factor is the demographic time bomb in advanced economies. The COVID-19 crisis shows that much more public spending must be allocated to health systems, and that universal health care and other relevant public goods are necessities, not luxuries. Yet, because most developed countries have aging societies, funding such outlays in the future will make the implicit debts from today’s unfunded health-care and social-security systems even larger.

3) Debt deflation
A third issue is the growing risk of deflation. In addition to causing a deep recession, the crisis is also creating a massive slack in goods (unused machines and capacity) and labor markets (mass unemployment), as well as driving a price collapse in commodities such as oil and industrial metals. That makes debt deflation likely, increasing the risk of insolvency.

4) Currency debasement produces stagflation
A fourth (related) factor will be currency debasement. As central banks try to fight deflation and head off the risk of surging interest rates (following from the massive debt build-up), monetary policies will become even more unconventional and far-reaching. In the short run, governments will need to run monetized fiscal deficits to avoid depression and deflation. Yet, over time, the permanent negative supply shocks from accelerated de-globalization and renewed protectionism will make stagflation all but inevitable.

5) Accelerated automation
A fifth issue is the broader digital disruption of the economy. With millions of people losing their jobs or working and earning less, the income and wealth gaps of the twenty-first-century economy will widen further. To guard against future supply-chain shocks, companies in advanced economies will re-shore production from low-cost regions to higher-cost domestic markets. But rather than helping workers at home, this trend will accelerate the pace of automation, putting downward pressure on wages and further fanning the flames of populism, nationalism, and xenophobia.

6) De-globalisation / Protectionism
This points to the sixth major factor: de-globalization. The pandemic is accelerating trends toward balkanization and fragmentation that were already well underway. The United States and China will decouple faster, and most countries will respond by adopting still more protectionist policies to shield domestic firms and workers from global disruptions. The post-pandemic world will be marked by tighter restrictions on the movement of goods, services, capital, labor, technology, data, and information. This is already happening in the pharmaceutical, medical-equipment, and food sectors, where governments are imposing export restrictions and other protectionist measures in response to the crisis.

7) Xenophobia
The backlash against democracy will reinforce this trend. Populist leaders often benefit from economic weakness, mass unemployment, and rising inequality. Under conditions of heightened economic insecurity, there will be a strong impulse to scapegoat foreigners for the crisis. Blue-collar workers and broad cohorts of the middle class will become more susceptible to populist rhetoric, particularly proposals to restrict migration and trade.

8) Decoupling USA - China
This points to an eighth factor: the geostrategic standoff between the US and China. With the Trump administration making every effort to blame China for the pandemic, Chinese President Xi Jinping’s regime will double down on its claim that the US is conspiring to prevent China’s peaceful rise. The Sino-American decoupling in trade, technology, investment, data, and monetary arrangements will intensify.

9) New cold war
Worse, this diplomatic breakup will set the stage for a new cold war between the US and its rivals – not just China, but also Russia, Iran, and North Korea. With a US presidential election approaching, there is every reason to expect an upsurge in clandestine cyber warfare, potentially leading even to conventional military clashes. And because technology is the key weapon in the fight for control of the industries of the future and in combating pandemics, the US private tech sector will become increasingly integrated into the national-security-industrial complex.

10) Environmental disruption
A final risk that cannot be ignored is environmental disruption, which, as the COVID-19 crisis has shown, can wreak far more economic havoc than a financial crisis. Recurring epidemics (HIV since the 1980s, SARS in 2003, H1N1 in 2009, MERS in 2011, Ebola in 2014-16) are, like climate change, essentially man-made disasters, born of poor health and sanitary standards, the abuse of natural systems, and the growing interconnectivity of a globalized world. Pandemics and the many morbid symptoms of climate change will become more frequent, severe, and costly in the years ahead.

FURTHER SUGGESTED READING
Books I am currently reading:
Graeber, David. Debt: The First 5,000 Years (2014 edition)
Graeber, David. Bullshit Jobs: A Theory (2019)
Hudson, Michael. Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy (2015)
Hudson, Michael. J is for JUNK Economics: A Guide to Reality in an Age of Deception (2017)
Piketty, Thomas. Capital in the Twenty-First Century (2013)

Interviews and links to his books at Michael Hudson's blog

The Main Street Manifesto

The Main Street Manifesto
Jun 24, 2020 Nouriel Roubini

The mass protests following the killing of George Floyd by a Minneapolis police officer are about systemic racism and police brutality in the United States, but also so much more. Those who have taken to the streets in more than 100 American cities are channeling a broader critique of President Donald Trump and what he represents. A vast underclass of increasingly indebted, socially immobile Americans – African-Americans, Latinos, and, increasingly, whites – is revolting against a system that has failed it.

This phenomenon is not limited to the US, of course. In 2019 alone, massive demonstrations rocked Bolivia, Chile, Colombia, France, Hong Kong, India, Iran, Iraq, Lebanon, Malaysia, and Pakistan, among other countries. Though these episodes each had different triggers, they all reflected resentment over economic malaise, corruption, and a lack of economic opportunities.

The same factors help to explain populist and authoritarian leaders’ growing electoral support in recent years. After the 2008 financial crisis, many firms sought to boost profits by cutting costs, starting with labor. Instead of hiring workers in formal employment contracts with good wages and benefits, companies adopted a model based on part-time, hourly, gig, freelance, and contract work, creating what the economist Guy Standing calls a “precariat.” Within this group, he explains, “internal divisions have led to the villainization of migrants and other vulnerable groups, and some are susceptible to the dangers of political extremism.”

The precariat is the contemporary version of Karl Marx’s proletariat: a new class of alienated, insecure workers who are ripe for radicalization and mobilization against the plutocracy (or what Marx called the bourgeoisie). This class is growing once again, now that highly leveraged corporations are responding to the COVID-19 crisis as they did after 2008: taking bailouts and hitting their earnings targets by slashing labor costs.

One segment of the precariat comprises younger, less-educated white religious conservatives in small towns and semi-rural areas who voted for Trump in 2016. They hoped that he would actually do something about the economic “carnage” that he described in his inaugural address. But while Trump ran as a populist, he has governed like a plutocrat, cutting taxes for the rich, bashing workers and unions, undermining the Affordable Care Act (Obamacare), and otherwise favoring policies that hurt many of the people who voted for him.

Before COVID-19 or even Trump arrived on the scene, some 80,000 Americans were dying every year of drug overdoses, and many more were falling victim to suicide, depression, alcoholism, obesity, and other lifestyle-related diseases. As economists Anne Case and Angus Deaton show in their book Deaths of Despair and the Future of Capitalism, these pathologies have increasingly afflicted desperate, lower skilled, un- or under-employed whites – a cohort in which midlife mortality has been rising.

But the American precariat also comprises urban, college-educated secular progressives who in recent years have mobilized behind leftist politicians like Senators Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts. It is this group that has taken to the streets to demand not just racial justice but also economic opportunity (indeed, the two issues are closely intertwined).

This should not come as a surprise, considering that income and wealth inequality has been rising for decades, owing to many factors, including globalization, trade, migration, automation, the weakening of organized labor, the rise of winner-take-all markets, and racial discrimination. A racially and socially segregated educational system fosters the myth of meritocracy while consolidating the position of elites, whose children consistently gain access to the top academic institutions and then go on to take the best jobs (usually marrying one another along the way, thereby reproducing the conditions from which they themselves benefited).

These trends, meanwhile, have created political feedback loops through lobbying, campaign finance, and other forms of influence, further entrenching a tax and regulatory regime that benefits the wealthy. It is no wonder that, as Warren Buffett famously quipped, his secretary’s marginal tax rate is higher than his

Or, as a satirical headline in The Onion recently put it: “Protesters Criticized for Looting Businesses Without Forming Private Equity Firm First.” Plutocrats like Trump and his cronies have been looting the US for decades, using high-tech financial tools, tax- and bankruptcy-law loopholes, and other methods to extract wealth and income from the middle and working classes. Under these circumstances, the outrage that Fox News commentators have been voicing over a few cases of looting in New York and other cities represents the height of moral hypocrisy.

It is no secret that what is good for Wall Street is bad for Main Street, which is why major stock-market indices have reached new highs as the middle class has been hollowed out and fallen into deeper despair. With the wealthiest 10% owning 84% of all stocks, and with the bottom 75% owning none at all, a rising stock market does absolutely nothing for the wealth of two-thirds of Americans.

As the economist Thomas Philippon shows in The Great Reversal, the concentration of oligopolistic power in the hands of major US corporations is further exacerbating inequality and leaving ordinary citizens marginalized. A few lucky unicorns (start-ups valued at $1 billion or more) run by a few lucky twenty-somethings will not change the fact that most young Americans increasingly live precarious lives performing dead-end gig work.

To be sure, the American Dream was always more aspiration than reality. Economic, social, and intergenerational mobility have always fallen short of what the myth of the self-made man or woman would lead one to expect. But with social mobility now declining as inequality rises, today’s young people are right to be angry.

The new proletariat – the precariat – is now revolting. To paraphrase Marx and Friedrich Engels in The Communist Manifesto: “Let the Plutocrat classes tremble at a Precariat revolution. The Precarians have nothing to lose but their chains. They have a world to win. Precarious workers of all countries, unite!”

REFERENCES, from the article
The Precariat: The New Dangerous Class by Guy Standing

Deaths of Despair and the Future of Capitalism by Anne Case and Angus Deaton

Decades of rising economic inequality in the U.S.
Testimony by Elise Gould, 2019

Hired: Six Months Undercover in Low-Wage Britain by James Bloodworth

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite By Daniel Markovits

The Great Reversal: How America Gave Up on Free Markets by Thomas Philippon

FOOTNOTE: For more about Roubini's background and economic ideas see Nouriel Roubini (wikipedia)

debating the virus

Exponential growth

Eight days ago I sent some figures to a friend saying that if exponential growth continued, doubling every 4 days, then we would have 3,200 corona virus cases in Australia today (28/3)

Our government website, Coronavirus (COVID-19) current situation and case numbers, says that yesterday, 27/3 at 3pm there were 3,166 confirmed cases, so we are still on an exponential growth path.

From their graph the doubling looks roughly like this:

date   total cases
9/3        100
12/3       200
16/3       400
20/3       800
24/3      1600
28/3      3200

Extrapolating that further if the current exponential growth continues
1/4       6400
5/4      13,000
9/4      26,000
13/4     52,000
17/4    104,000
21/4    208,000
25/4    416,000
29/4    832,000

Nearly a million cases by the end of April. These figures, understanding exponential growth, explains the importance of an immediate lock down or hibernation.

Click on the image for a larger view. The lower reported figures in the last two days could be a positive sign or could be a delay in reporting.

update (new graph 4 days later, March 31st):

Hard to read at that size but click on the image for a larger view. Note that the reported figures for each day creep up after the day has passed. New cases on 26/3 are 280 on the first graph and jump to 360 on the second graph. New cases on 27/3 are 175 on the first graph and jump to 370 on the second graph.

Nevertheless, the curve has flattened a little. If doubling every 4 days had continued we would be up to 6,400 cases tomorrow (1/4) and our current figure of 4,359 (today, 31/3) is well below that.
/update

The debate in Australia and world wide is divided between:

• Those screaming for an immediate lockdown (#lockdownAustralia, Dr Greg Kelly) and critical of Scott Morrison for his ambivalence and mixed messages.


• Those saying that the danger of this virus has been exaggerated, that the Infectious Fatality Rate is roughly 2 deaths in a 1000 cases (eg. Global Covid-19 Case Fatality Rates:

  Our current best assumption, as of the 22nd March, is the IFR is approximate 0.20%... and later .... Current data from Iceland suggests the IFR is somewhere between 0.05% and 0.14%

• Those saying that it is more important to keep the economy going and that a lockdown will have worse consequences than attempting to contain the virus (eg. The Corona Dilemma)


• Those saying that the capitalist system is inherently anarchic or unstable and that this event will push us into an economic downturn worse than the 1930s Depression (A Greater Depression?, People’s Forum: Economic Lessons for 2020)

My views:
I'll keep this brief since still reading and assessing:
(1) What should we do immediately? I agree with lockdown simply because there are empirical cases of
(a) it can overwhelm health systems as in Italy
(b) Some countries through lockdown have succeed in flattening the curve (China, South Korea, Japan, Hong Kong, Singapore)

(2) There is a lot we don't know about this particular virus, we need to learn a lot more. eg. as far as I'm aware we don't know whether young people with the virus who are asymptomatic pass it on to others. Of course there are a lot of experts working hard on this right now.

(3) What does the health endpoint look like and how long will that take? Can a vaccine be developed in less than 18 months? Apart from a vaccine what other end points are possible?

(4) Economic and political futures. The left has been lost for many years. There seem to be a few thinkers with a clue (eg. Michael Hudson, David Graeber) but no coherent movement to lead us out of this mess.

why trump won

economic reality beats identity politics

The recognition that the economy hasn't recovered from the 2008 crisis and the Obamas / Clintons have protected Wall Street (no Banker gaoled; what new wealth there is has gone to the top 5%) has become a stronger social force than identity politics (you are female, black, Hispanic etc., we support you morally but not economically)

More detailed explanations here:
Break Up the Democratic Party
The Great Con: Political Correctness Has Marginalized the Working Class

update 4th December 2016:
Michael Moore picked it well before the election:
5 reasons why trump will win

update 14th December 2016:
If You Think This Is About Sexism and Racism, You’re Missing the Point by Eric Robert Morse
(the Michael Moore video within this article is very powerful, worth taking the time to watch IMHO)

As Moore puts it: “Donald Trump came to the Detroit Economic Club and stood there in front of Ford Motor executives and said ‘if you close these factories as you’re planning to do in Detroit and build them in Mexico, I’m going to put a 35% tariff on those cars when you send them back and nobody’s going to buy them.’ It was an amazing thing to see. No politician, Republican or Democrat, had ever said anything like that to these executives, and it was music to the ears of people in Michigan and Ohio and Pennsylvania and Wisconsin — the ‘Brexit’ states.”

update 15th December 2016:
Democrats, Trump, and the Ongoing, Dangerous Refusal to Learn the Lesson of Brexit by Glen Greenwald

The Trump victory provides us not just the opportunity but the necessity to dig deeper into what is really happening in America, not to mention the world since we have BrExit in England, the popularity of Pauline Hanson in Australia, etc. I found this Readers Review of a new book, Hillbilly Elegy: A Memoir of a Family and Culture in Crisis, enlightening:

There is a lot to take in here, even for someone that's seen this life up close in many of its many guises.

While ostensibly about the particular culture of the West Virginia Scots-Irish underclass, anyone that has seen white poverty in America's flyover states will recognize much of what is written about here. It is a life on the very edge of plausibility, without the sense of extra-family community that serves as a stabilizing agent in many first-generation immigrant communities or communities of color. Drugs, crime, jail time, abusive interactions without any knowledge of other forms of interaction, children growing up in a wild mix of stoned mother care, foster care, and care by temporary "boyfriends," and in general, an image of life on the edge of survival where even the heroes are distinctly flawed for lack of knowledge and experience of any other way of living.

This is a story that many of the "upwardly mobile middle class" in the coastal areas, often so quick to judge the lifestyles and politics of "those people" in middle America, has no clue about. I speak from experience as someone that grew up in the heartland but has spent years in often elite circles on either coast.

Two things struck me most about this book.

First, the unflinching yet not judgmental portrayal of the circumstances and of the people involved. It is difficult to write on this subject without either glossing over the ugliness and making warm and fuzzy appeals to idealism and human nature, Hollywood style, or without on the other hand descending into attempts at political persuasion and calls to activism. This book manages to paint the picture, in deeply moving ways, without committing either sin, to my eye.

Second, the author's growing realization, fully present by the end of the work, that while individuals do not have total control over the shapes of their lives, their choices do in fact matter—that even if one can't direct one's life like a film, one does always have the at least the input into life that comes from being free to make choices, every day, and in every situation.

It is this latter point, combined with the general readability and writing skill in evidence here, that earns five stars from me. Despite appearances, I found this to be an inspiring book. I came away feeling empowered and edified, and almost wishing I'd become a Marine in my younger days as the author decided to do—something I've never thought or felt before.

I hate to fall into self-analysis and virtue-signaling behavior in a public review, but in this case I feel compelled to say that the author really did leave with me a renewed motivation to make more of my life every day, to respect and consider the choices that confront me much more carefully, and to seize moments of opportunity with aplomb when they present themselves. Given that a Hillbilly like the author can find his way and make good choices despite the obstacles he's encountered, many readers will find themselves stripped bare and exposed—undeniably ungrateful and just a bit self-absorbed for not making more of the hand we've been dealt every day.

I'm a big fan of edifying reads, and though given the subject matter one might imagine this book to be anything but, in fact this book left me significantly better than it found me in many ways. It also did much to renew my awareness of the differences that define us in this country, and of the many distinct kinds of suffering and heroism that exist.

Well worth your time.

update 21st December:
Both of these articles re-iterated the point that the fundamental reason for Trump's victory was economic.

J.D. Vance, the False Prophet of Blue America
This one argues that Hillbilly Elegy stresses the individual attitudes required to escape poverty too much, that it becomes a morality play. It's too hard to pull yourself up by the bootstraps if you don't have boots.

To Understand 2016’s Politics, Look at the Winners and Losers of Globalization: An interview with economist Branko Milanovic
The elephant chart shows that globalisation has not benefited the middle classes in the developed nations:

The biggest gains, (Milanovic) found, have gone to the very richest in the richest countries—the kinds of people that are overwhelmingly found in places like London or US coastal cities—as well as the “emerging global middle class,” people with much less wealth who are predominantly located in China. Both of these groups saw their real incomes skyrocket from their previous levels, though Chinese people on overage are still only one fourth as wealthy as Americans. The world’s poorest people didn’t do nearly as well, but they saw some improvements.

And the losers have been working people in rich countries. A large portion of the lower middle class in Western Europe and the US saw essentially no income gains since the Reagan administration, while almost everybody else in the world, including elites in their own countries, moved forward. Milanovic presented his data for these findings in the now famous “Elephant chart.” The graph, which looks like the outline of an elephant, shows how much incomes have increased for people at different levels of wealth. The dip between the elephant’s back and its trunk shows the comparatively small gains that working people in rich countries have seen

The social form perspective of value

Index for a series of articles about Value
1) Marx and the domains of ignorance
2) Unpacking the value suitcase
3) The commodity perspective on value
4) The labour process and different categories of labour
5) The social form perspective of value
6) The equivalent form and the evolution of value into money
7) (to be continued)

What is a social form?

Unknown unknowns: All the things you don't know you don't know

I thought I had understood capitalism, that the bosses owned the means of production and the workers had no option but to sell their labour to the boss. There were rich people, poor people and class struggle.

But I didn't know about Value as a social form and so my real understanding of capitalism was deficient.

Despite my involvement in radical anti-imperialist / communist politics going back to the late 1960s I totally missed that a variety of social forms (formations) that we swim in daily have evolved and materialised from non material things, namely social relations. For example, some people worship money and virtually everyone can't help but adopt a strong interest in money, since it is essential to both survival and a good life. But most people haven't thought through that money originates in a social relation, that is, the need to standardise commodity exchange.

Such social forms are historically contingent, not an inevitable aspects of society. In the late 60s I had looked below the surface of capitalism and understood some of its workings but had missed that there was a lot more happening down there than I had imagined. Sadly, I now realise, my ignorance was and is shared by most other 60s radicals. This ignorance originated in a failure to understand Marx's most important work, “Capital”.

social forms

Social forms are things that emerge (materialise) as social artefacts as society evolves. Their origin is social not material. They become part of that society and are often perceived as part of the air we breathe. But it is social function that has brought them about and not the form which has created the social function. They don’t have any necessary permanence beyond that. Social forms in capitalist society include things of major importance such as value, abstract labour, money, capital, the commodity, commodity exchange, the market, rent and interest. These things emerge from a social process and are not set in stone for all time.

What Marx meant by Value as a social form was the capacity of a commodity to be exchanged as an equal. In terms of social or class consciousness some people have a strong sense of boss – worker relations as a social construct, something that can change, but usually do not have the same sense that Value has arisen socially and will not be around forever. You can imagine a society (socialism, communism) where things are produced for people's needs or wants, that people will receive food, medicine and white goods irrespective of their financial status. In such a society Value as a measure of commodities to be exchanged would whither away.

The social form of value

Commodities have a physical, bodily form (use values) and a value form (a social form). Value does not contain a single atom of matter. Value is a social reality. It comes into being through the social exchange of equivalents. Value hides behind exchange value, what we perceive on the surface.

After establishing that value is materialized or crystallized or embedded or congealed or abstract human labour Marx then starts to discuss the social form of value. By this he means that value is not a natural property of a commodity but arises socially due to the exchange of one commodity for another.

He doesn't emphasise that he is throwing a hand grenade into what he has previously established. Congealed, abstract labour has a concrete, measurable, cut and dried feel to it as a “definition” of value. He now introduces the idea that value is also social, that it exists in the space between the exchange of commodities, that it doesn't belong to a commodity but in the relationship of one commodity to another. This undermines the concrete feel of value.

This was confusing. How could value be BOTH a fluid social thing and a definite, even measurable, concrete thing at the same time?

I think I was vaguely aware that my thinking was being too literal, too linear and this intellectual demand that I hold two contradictory aspects in continual tension in my mind at the same time did require a different way of thinking. This is the Marxist way, his dialectical legacy from Hegel.

Note, however: In nature, the transformation of energy from one form to another (when a stone falls to the ground gravitational potential becomes kinetic energy becomes sound energy etc.) while at the same time the amounts of energy involved can be precisely measured. So the concept of change of form accompanying quantitative measurement, even precise measurement, is not a conceptual game changer in this case. But, of course, in the case of value, the origin of the form is social not natural and that adds another level of conceptual difficulty.

Rubin's definition of value

My confusion about value led me to search for a more complete definition. I thought I had found this in Isaak Rubin's writings and this felt like another AHA moment

“Marx analyses value in terms of its form, substance and magnitude. “The decisive, crucial point consists of revealing the necessary internal connection between the form, substance and magnitude of value” (Capital Volume one, first edition). The connection between these three aspects was hidden from the eyes of the analyst because Marx analysed them separately from each other. In the first German edition of Capital, Marx pointed out several times that the subject was the analysis of various aspects of one and the same object: value. “Now we know the substance of value. It is labour. We know the measure of its magnitude. It is labour time. What still remains is its form, which transforms value into exchange-value.” … In the second edition of Volume one of Capital these sentences were excluded, but the first chapter is divided into sections with separate headings: the heading of the first section say, “Substance of Value and Magnitude of Value”; the third section is titled: “Form of Value or Exchange-value.” As for the second section, which is devoted to the two fold character of labour, it is only a supplement to the first section, ie. To the theory of the substance of value”
- Ch 12, Content and Form of Value p. 112, in Essays on Marx's Theory of Value by Isaak Rubin

So, according to Rubin, the value of a commodity is:

• a social form or social relation (the capacity for a commodity to be exchanged as an equal)
• AND a substance or content which is embedded abstract, social labour
• AND a magnitude (labour time)

Value is BOTH a dynamic social relation and embedded abstract labour. To see only the embedded labour part is to not understand value in motion. Embedded labour implies a static notion of value. But abstract labour and labour time are derived from a social process involving both the production and circulation of commodities. If there is a glut of commodities that are not sold they contain no value, the “embedded labour” counts for nothing.

Socially necessary labour time perspective on value

At some stage I became aware that David Harvey (in his online lectures) was explaining value with the phrase (from Marx) socially necessary labour time.

This is shorthand but, in a way, reasonable shorthand since it contains both the quantitative aspect (labour time) and the social qualitative aspect (socially necessary) in the one expression.

Socially necessary is when you think about it unpredictable. Who can say in advance how much labour is socially necessary? We don't know in advance whether the products will sell (if they don't their labour doesn't count) or whether new technology will be introduced which will reduce the necessary labour time or whether workers will agitate for a wage increase, etc.

Reference

Marx, Karl
- Chapter 1.3 The Form of Value or Exchange-value of Capital Vol 1
- Ch. 1 as per First German Edition
- The Value Form. Appendix to the 1st German edition of Capital, Volume 1, 1867

Rubin, Isaak. Essays on Marx's Theory of Value

Greece: sign a petition or start a revolution?

The economic crash of 2008 hasn't gone away, has it? Perhaps I should resume my study of political economy. I tried before but abandoned it because it was so difficult.

The crisis in Greece isn't going away. It wouldn't surprise me if it spread further.

Here are some facts that were posted to the xmca list (Mind, Culture and Activity) about the situation inside Greece:

Unemployment in Greece is officially at 26% of the working population (1.4 mil. people –unofficially they are more than 3 million If you take into consideration those that they have stopped reporting their employment state, and mostly those employed only a few hours per week gaining less than 200€ per month)

Another 3 million people live near the poverty limit (that is, they cannot afford buying all meals of the week, or pay their utilities, let alone their mortgages, or taxes),

And another 3 million people can hardly cover all of their mortgages and taxes.

Leaving less than a couple of millions that can run a life of the average middle class in a western country

Needless to refer to the few thousands that have built monumental fortunes by evading taxation and suppressing labor costs.

These facts were posted as background information to raise support for a petition. But even more interesting someone else then posted this reply:

Only a socialist revolution can save the Greek people and can grant her an honorable, sustainable human life, as advocated by KKE (Communist Party of Greece). All options other than this are either a lie or an illusion, which does conceal today's capitalism's realities or consciously deceive the working masses.

Syriza govt is managing this crisis for capital and tries to keep the country in the line of interests for greek and international capital, not for the working class. Like Podemos in Spain. Capitalist Europe is shrinking in all respects and it is time for working peoples to search for other, much more realistic options. Otherwise, peoples will miss these days.

I scrolled through my blogroll for related articles and found this one, which drills down deeper into the facts and the anger: Email from Greek Voter With "No Dreams and Nothing to Lose"; Greek 'No' Vote Demographics

Renewable energy costs more than fossil fuels

This is the beginning of a long thread (actually, a couple of long threads) from the Making Sense of Climate Denial Course ("Climate change is real, so why the controversy and debate? Learn to make sense of the science and to respond to climate change denial"), which ran from April-June, 2015.

If you want to read the full thread which contains this introduction then go here straight away. Otherwise, keep reading here if you first want the introduction which sparked the thread before deciding whether or not to read the whole thing.

It represents a challenge to the course organisers on the issue of whether renewables are more expensive than fossil fuels.

Fact: Renewable energy costs more than fossil fuels
discussion posted 4 days ago by ArthurD
Vote for this post, there are currently 3 votes 3 Votes

This simple fact is common ground among all serious participants in debates concerning what to do about global warming.

It is the central reason why many argue for a carbon tax and subsidies to renewables. Without such measures there is no hope of renewables replacing fossil fuels.

It is also the central reason for concern that the world will continue on the present "business as usual" track towards significant problems from global warming before the end of the century. No such measures are in fact being taken to the extent that would be required to make a significant difference.

The vast majority of emissions are expected to come from poor countries like India and China rapidly industrializing over the next few decades.

They are not cannot and will not be switching from fossil fuels to renewables because they cannot afford the extra cost. Consequently 4 times as much additional energy is being supplied by coal each year as by renewables.

There are NO serious claims that renewables will become cheaper than fossil fuels. What IS being claimed is that they will become cheaper than they are now but that it is still NECESSARY to make fossil fuels more expensive through such measures as carbon taxes in order to internalize the external costs imposed by emissions.

Numerous posts with "good news" about trends towards renewables demonstrate that many students in this course are unaware of these facts.

Worse, course staff are actively in denial about them.

I started a thread on this, which had 47 posts --> this course helps preserve fossil fuels

Another student posted several links as follows:

"I'm a serious student of the economic debate, with a degree in economics and in science: renewables demonstrably cost less than consumables, and I nor the World Bank, nor http://thesolutionsproject.org/ nor https://www.irena.org/DocumentDownloads/Publications/Renewable_Power_Generation_Costs.pdf nor Swanson's Law nor http://www.skepticalscience.com/renewable-energy-is-too-expensive.htm nor the IEA do not tacitly or otherwise agree to the myth of cheap consumables; it's a bald misrepresentation to suggest consumables are cheaper."

Not one of these links claims that renewables are or will become cheaper than fossil fuels so that poor countries could switch to them while industrializing. The last, from the group behind this course, repeats what is in fact usually claimed:

"When you account for the effects which are not reflected in the market price of fossil fuels, like air pollution and health impacts, the true cost of coal and other fossil fuels is higher than the cost of most renewable energy technologies."

This is true but completely irrelevant to the question of whether renewables will or can replace fossil fuels in the poor countries that are industrializing.

They are paying ACTUAL costs in the ACTUAL situation of no "carbon price" and people on $2 per day have much higher priorities. They do NOT "account for the effects". (Neither for that matter do most developed countries that could afford to, but the point is that even if they did, poor countries still CANNOT do so while industrializing).

The response of course staff was to close down the thread before I could even point out that NONE of the links offered even denied, let alone refuted the commonly accepted basis for all serious debate that renewables are not replacing fossil fuels because their actual costs are greater.

Please take a look at the closed thread and then come back here and follow this thread if you are interested in serious discussion of what can be done about the ACTUAL situation rather than pretense that endlessly repeating what OUGHT to be can change what is continuing to happen - "business as usual" with rapidly growing emissions.

For the subsequent (lengthy) discussion of these introductory comments go here

"A wish for a better reality" Smari McCarthy

In the minds of some people there is a connection between different issues that amounts to a continuity. You may call it hope, you may call it wishful thinking or it may be a reflection of reality. In the mind of the Icelandic / Irish information activist Smari McCarthy these events are closely linked: the Economic Crash of 2008 - the Arab Spring of 2010-11 - the current Icelandic Freedom of Information movement

I think he is right.

This story, Bergeron's Children (source) by Smari McCarthy explains how:

1

On the 19th of December 2010, I received a message from a guy I’d met some months previously. ‘TUNISIA’, it said. Capitals, no punctuation. Nothing else.

I searched, saw what was happening, and pinged another contact, a Tunisian guy, asking how I could help. Over the next couple of weeks, we accumulated a set of videos from the protests all over Tunisia, and I bundled them up into an easy to view, share and mirror package.[1] This was the beginning of massive weaponised Streisandisation. The theory is, when you try to restrict access to information, the value of that information goes up. Barbara Streisand learned this the hard way.[2] Anybody who’s ever seen porn knows this instinctively.

Shortly after the Streisandisation project began, Ben Ali fled the country. Unrelated, but revolution was here. And while the victory belonged to the Tunisian people and outsiders should not lay claim to it, I can’t say that I wasn’t somewhat proud. But before the joviality had passed its apex, another message from the same contact: ‘EGYPT’.

This is a guy who had been monitoring North African human rights issues for decades. He knows this stuff in and out. This is a guy who was tortured, and fled, and survived. So when this guy sends me a message, I take it seriously.

A Swedish-originating hacktivist (hacker+activist) group I’ve been working with, Telecomix, took the Egyptian cause to heart. Peter Fein describes Telecomix as the Yin to the Yang of Anonymous.[3] They break, we rebuild. When the Internet got cut off in Egypt, the plain old telephone system was still left running. So the Telecomix agents thought: ‘If the phones are running, we can install modem stacks and people can dial in.’ Reverting to an ancient technology to protect freedom of expression has never been so fun. Somebody came up with the great idea of crawling the Internet in search of Egyptian fax numbers, and a message was constructed and sent to all of them, giving information about how to dial in to the modem racks we had set up in Sweden and Germany. Egypt fell, kind of.

As the year moved on, things slowed down. As NATO started bombing Libya, I kept waiting for a message. None came. So I did as any man would in that situation, and went to Norway. Sitting there one evening, watching Tim Minchin videos and debating information politics, I received the third message: ‘SYRIA’.

Why was Libya so overlooked, as the bombs fell from on high? Could it be callousness on the part of my delightfully informed comrade, or was it something else? Considering the dynamics of what played out in Tunisia and Egypt, and what has since been going on in Syria, it’s hard to think that the Libyan uprising is motivated by the same ideals. The tribal origins of the revolution, coupled with the almost immediate influx of weapons from various Gulf countries and from NATO gives the impression that it was a power grab. Oman, Jordan, Bahrain. Egypt. Iraq. Throughout the region, people were taking to the streets. In Libya it was different. More focused. Some weird politics were in play.

But this is not about Libya. The Arab Spring undoubtedly put a mark on 2011, but for me it was only the origin of the confusion that shaped the year, and the cadence to which my life harmonised.

July. I was sitting at a café in Porto, feeling relaxed and happy with life, when news comes: a city in Syria, Homs, has disappeared from the Internet. A massive contingent of information activists from all over the world start trying to figure out why. After a while, it becomes clear, as we start to see scattered and vague reports of tanks rolling into the city. Then, at more or less the same time that the tanks were blowing holes in buildings in Homs, a massive nationalist Christian conservative fertiliser bomb goes off in Oslo. Just around the corner from where I had been when the ‘SYRIA’ message arrived.

2

To make sense of 2011, I go back to Kurt Vonnegut’s short story, ‘Harrison Bergeron’.[4] The 1995 film adaptation will do even better.[5] The setting is the United States in the second half of the 21st century. After the Cold War, there had come a massive economic downturn: the great recession, which never really ended. ‘In all previous recessions,’ Harrison says, ‘once the economy bottomed out and production increased, unemployment decreased. But in the Great Recession due to new and improved technologies, fewer and fewer workers were required in all sectors. With so many people forced from their jobs the traditional economic recovery was impossible.’ The widening gap between rich and poor ended in a Second American Revolution, following which the government mandates total egalitarianism: citizens are subject to mind-numbing television programmes and fitted with electronic headbands to regulate their intelligence to a social norm.

It is a society in which everybody is forced to be equal, yet what is presented as equality is really a docile acceptance that one should not engage creatively: in fact, should not engage at all, since any engagement in the issues of the society would be a cause of disequilibrium. Anybody who lacked the cognitive capacity to understand the implications would be left behind, and therefore it is considered imperative that all be forcibly reduced to the same level.

Being rather smarter than would otherwise be acceptable, Harrison finds himself recruited to the secret organisation that runs this society. They aren’t allowed to breed, but they are allowed to enjoy all of what human culture had to offer, in terms of culture and technology. Unlike everyone else, they have not been subdued by an information vacuum and prepackaged ideologies. But our protagonist rebels against all of this, taking control of the broadcasting system...

You can guess the rest; it isn’t really important. What matters is the seed of rebellion planted by Harrison. It is only hinted at in the closing moments of the film, but slowly, after his subversive act of defiance against the shadow government, people start to wake up.

I can imagine how it played out. Teenagers daring each other to take the headbands off in secret. Adults sneaking to read a book or two. People having conversations about the state of the world. About history. About culture. Somebody might become good at playing the violin.

And one day, somebody gets a text message. ‘AMERICA’, it might say.

3

By August, Telecomix was providing infrastructural support to half a dozen revolutions. Some, like Egypt, were nominally complete but still reeked of militarism and repression. Others, like Libya and Syria, were ongoing and becoming bloodier each day.

The toll a revolution takes on the revolutionaries is immense. People get tired. Exhausted even. Post-traumatic stress disorder, combat fatigue. Burnout. What we learned, during all of this, is that support staff also get burned out. It’s like the drone pilots dropping bombs on innocent civilians in Afghanistan and Iraq. The cause is more moral, but the scenario is the same. When a soldier goes to war, he stays on the battlefield with friends and comrades for extended periods of time. He and his allies are immersed in the context of their reality, and they back each other up. Just like the protesters on the streets of New York or Oakland, of Madrid or Athens, Damascus and Cairo. That contextual immersion is lost on the drone pilots and hacktivists: when our shift is done, we unplug and leave the war zone. We walk through peaceful streets and have dinner with friends who don’t know or don’t care what happened today in some far away place. Our context shifts from war to peace. Eleanor Saitta wrote that her ‘friends at Telecomix are not on the front lines in Syria, but they know many people there well, and even fighting that war at a remove can tear you apart.’[6]

4

I never got the message saying ‘AMERICA’. I never got one saying ‘UK’. There were many I wish I had received but never did. Yet mixed with that wish was a deep and unnerving fear. A wish for a better reality mixed with fear that the reality I had lived with all my days was at an end. For much of 2011, my heart would jump whenever my phone beeped or rang. Sleep was more disturbed than ever, marked by cold sweat. I was not alone. Many of my friends were suffering, and many thousands of others were fighting a brutal war against oppression, felling dictators when they could, but more often failing.

5

Then we ask why. Why now? What made 2011 different from other years? In many ways it was similar to 2008, when my home country crashed. Iceland’s economy burst and lost almost all of its mass over the course of a few weeks. Iceland is recovering, but there is little will amongst the political class to work through the legacy of the crash which marked the beginning of the end. 2011 was the third year of the Great Recession which had taken many small countries in its first wave.

The politicians and economists hoped that once the economy bottomed out and production increased, unemployment would decrease. They refused to acknowledge that, due to new and improved technologies, fewer and fewer workers are required in all sectors. With so many people forced from their jobs, the traditional economic recovery is impossible. The question becomes: what does a nontraditional economic recovery look like?

The sequence of events was unexpected. All of us who had thought about this eventuality seem to have expected the rich countries to go first. Some, like mine, did. But with our western tunnel vision, we overlooked the way in which the same forces were working on the countries where the stuff we use is made: people are competing against indefatigable machines on a free market. The owners of the devices and productive capacity that keep us alive have alienated all of us. The difference being that, outside of the most developed countries, infrastructural elasticity is much lower and personal freedoms comparatively nonexistent. Of course they were going to go first.

6

But now 2011 is past, and I’m not sure what is going to happen. Some countries are calming down, while others are still ratcheting up. At the time, I often thought that 2011 would be the year of the revolution, where we fix our world; now I see that this wasn’t the year in which we win the wars, but it was the year in which we picked our fights. It was the year in which we all became Bergeron’s children, waking from repose, casting off docility, and becoming human again. Not everybody is there, yet. A lot of people still have their headbands on. A lot of people have so forgotten how to be free that it feels alien to them.

There’s plenty of work to be done, but it’s going to get done. Globalisation may have been used against us so far, but now it’s working to our advantage. Humanity has, for the first time, a real ability to work together, but first we need to overcome some hurdles. In the words of Harrison Bergeron, ‘I hope we can all be together again real soon, as whole people, family – no bands, no government, just people...’

(1) A ‘mirror’ is an exact copy of another website, hosted on a different server. A ‘package’ like this makes it as easy as possible for anyone with access to a server to make a copy of the site, which makes it harder for the material on the site to be taken offline or blocked.
(2) See ‘Streisand effect’, Wikipedia - http://en.wikipedia.org/wiki/Streisand_effect
(3) Peter Fein, ‘Hacking for Freedom’, I Wear Pants, 17 June 2011 - http://blog.wearpants.org/hacking-for-freedom/
(4) Collected in Kurt Vonnegut Jr., Welcome to the Monkey House (New York: Delacorte Press, 1968).
(5) Harrison Bergeron, Directed by Bruce Pittman, 1995.
(6) Eleanor Saitta, ‘Our Stories, Our Weapons’ in ‘Two Stories of Uncivilization’, New Public Thinking, 30 August 2011 - http://newpublicthinkers.org/?p=107

Role of PPPs in Transition

Guest post by Arthur Dent
PPP = Public Private Partnerships

A scenario for transition from capitalism with socialized investment following another Great Depression and its (im)plausibility is discussed elsewhere.

For present purposes those assumptions are as arbitrary as the selection of some hypothetical specific PPP infrastructure project to pitch to some hypothetical target audience.

The need that has not been acted on is investment having become generally paralysed by world economic crisis. Not just traditional infrastructure but all kinds of large scale fixed capital construction projects are needed.

The essence of transition from capitalism under such a scenario is that it is partially public and partially private.

PPPs would be used for all major fixed capital construction projects that are significant for planning resumption of economic growth and ending mass unemployment. Buildings and plant that were previously (not) being privately financed, by single enterprises or project finance, not just the closely related “utilities”. Public institutions would also initially be largely untransformed, so public procurement of a traditional public utility infrastructure facility by a public agency would be subsumed under PPP arrangements as just another private participant that happens to be a public agency.

Public financial and economic planning and management organizations would be involved either as sponsors or minor participants in many types of build, own and operate projects, often taking substantial financial positions in both debt and equity based on the expropriated funds they are now able to invest as well as making ordinary commercial PPP arrangements with private participants.

The relatively small amount of economic and management expertise fully supportive of transition available to an inexperienced government would be heavily focused on the preparation, procurement and contract management/implementation of PPPs. They would have to structure the contracts so the private participants use their know how to maximize the public benefit in their own commercial interests. This would be very difficult and error prone, but not as implausible as simultaneously taking over all existing large economic institutions without enough skills to actually manage them in the public interest.

The much wider role of PPPs requires much better resourced public institutions responsible for PPPs. The relatively small numbers of government decision makers with adequate skills must supervise and structure appropriate incentives to motivate, much larger number of employees and consultants recruited from the private sector for their know how, despite their lack of support for transition.

Currently known “best practices” for PPPs would be generally applicable. There is no point in listing them. But the assumption of quite different circumstances imply many new lessons could only be learned from experience with at least the following differences from the usual circumstances.

1. Much greater transparency and much less corruption would be imposed on both the public and private participants as part of the broader social changes involved in transition.
2. Greater flexibility for detailed renegotiations would be necessitated by the circumstances of economic crisis and the more dynamic situations arising from transition.
3. Political, foreign exchange and national macroeconomic risks (interest rates etc) would be exclusively borne by the public participants and corresponding contingent liabilities and hedging or insurance costs appear openly on the central balance sheets. The public institutions responsible for exchange rates and macroeconomic stability would be closely involved in understanding the financial flows and risks they are assuming and the prices they require for asuming those risks and any hedging arrangements they may be able to make separately. Both international and local private participants would not need to make separate judgments or their own hedging arrangements for particular projects but only apply the sovereign risk ratings assessed uniformly by their own trusted ratings agencies.
4. Land use and resource management public agencies would likewise manage and appropriately price the responsibilities for land acquisition, site and regulatory risks.
5. Design, operations, construction, completion and maintenance performance risks would be exclusively borne by the private parties directly responsible for each aspect with detailed incentives tailored to reward overperformance and penalize underperformance. They would be carefully separated according to the expected and actual costs and risks borne by the participants engaged in each aspect and related global, national and sectoral statistical indexes.
6. Allocation of upside and downside market risks for supply of inputs and sale of outputs would be significantly more complex since the expropriation of private wealth for public investment in PPPs was made necessary by lack of profitable investment outlets in the prevailing market conditions of economic crisis. The aspect for which each private participant is responsible must be commercially viable to that participant at the low competitive rates of return prevailing under crisis conditions. But the overall project need only be value for money to the public participants based on accepting an even lower (or even negative) return on their investment in order to achieve planned economic growth and rapid recovery from mass unemployment.

Transition from Capitalism

Guest post by Arthur Dent

This article is a placeholder for an introduction to a series of articles on various aspects of economic policy to be advocated before, and implemented during, the early stages of, a transition from capitalism in advanced capitalist countries under various different possible scenarios.

I am nowhere near ready to write any such articles, even as tentative drafts, so I cannot write an actual introduction.

Meanwhile one of the courses I am studying to become able to write such tentative drafts is a MOOC on “Public Private Partnerships” by the World Bank. 

This requires as a final project for the policy and procedures track, publication of a “digital artefact” plus a description of the target audience in one hundred words.

I have published as my “digital artefact” the eight hundred word article on “Role of PPPs in Transition”:

The key requirement is:

“Topic: Identify an infrastructure need that could be developed as a PPP. This could be a project that is in process of development, one on a country’s PPP project lists, or a need that has not been acted on. Think about the key facts or ideas you wish to convey by answering the following questions:

• What is the infrastructure problem that the PPP is trying to solve?
• What services are to be provided and are these services affordable?
• What are the reasons that the private sector would want to participate?
• How should these risks be allocated? Consider the country context in judging the risks and who should take them.”

I have identified as a “need that has not been acted on” the general paralysis of investment resulting in prolonged mass unemployment in another Great Depression worse than the 1930s following a financial crisis worse than 2008.

Such a worse financial crisis than 2008 does not seem to be entirely implausible since the last one seems to have been merely postponed rather than resolved by the extraordinary measures taken. Nor does another Great Depression worse than the 1930s seem entirely implausible following such a worse financial crisis.

The need is for all the infrastructure required to resume economic growth, not just traditional infrastructure like existing public utilities. The problem that has to be solved is that there are no profitable outlets for private investment in crisis conditions so investment must be socialized rather than left up to private investors.

This would require some form of state capitalism either as a transition back to “normal” private capitalism or as a transition away from capitalism.

The absence of any significant left in advanced capitalist countries, at least in the english speaking ones I am familiar with, makes any transition away from capitalism seem completely implausible. But then the continued absence of any significant left under the conditions of prolonged mass unemployment and economic paralysis seems even more implausible.

There are already important changes in the political climate of countries like Greece, Spain and Iceland that could become precursors of something much bigger. These countries are peripheral rather than central to the advanced capitalist world, but they are part of it and they are already facing serious economic and political crisis situations.

So I am writing for the target audience described at the end of this introduction, in the conceivable scenario described below.

The services to be provided are not traditional public utilities but the ending of prolonged mass unemployment through resumption of economic growth.

These services are affordable because prolonged mass unemployment is not affordable and both labor and capital are cheap in depression conditions. What is missing is profitability, not affordability.

The private sector would not particularly want to participate, but would not have better options available. Corporations would still want whatever contracts are available at the best returns they can competitively get for the benefit of their shareholders, whether or not some of their shares that used to belong to wealthy private individuals now belong to public institutions. Board members and senior managers who no longer wanted to participate because their incentives had been expropriated would be replaced by board members and managers willing to work for the owners, old and new, under the incentives currently being offered.

But the social system would not yet have been changed and risks and incentives would still have to be allocated in the context of an advanced capitalist country in crisis that is merely beginning a transition from capitalism, not one that has completed such a transition. So many of the same principles would have to still apply and new ones could only be understood and evolved over time.

Scenario

Any transition from capitalism in advanced capitalist countries as a result of another Great Depression would involve:

1. Inexperienced left governments required to urgently get the economy moving again and end mass unemployment because previous governments, whether claiming to be left or right, had been unable to do so.
2. Some level of rapid expropriation of privately owned wealth that was immobilized by the crisis now made available for socialized investment in new fixed capital construction projects to get the economy moving again and absorb unemployment.
3. The day after a change in government would be similar to the day before. The same social relations based on money, wage labor and capital, the same social institutions such as globalized large corporations, and national and local large, medium and small enterprises and bureaucratic government departments and agencies, and the same economic paralysis.
   
   To simplify things I further assume a “simple” scenario with:
   
   
4. Expropriation narrowly targeted to take all and only the excess wealth of the top 1% of nationals.
5. This results in substantial investment funds becoming available to governments starting transition but most of the capital in each such country would still be held privately and by foreigners.
6. The most important capitalist countries such as the USA, China, Japan, and Germany would not be the first to start making the transition. But international financial and investment flows as well as trade continues.
7. Many top layers of management in most social institutions would be quite hostile to transition but there are enough supporters capable of supervising or replacing them.

Some of these assumptions may not look very plausible. But advocating measures based on such a “simple” case, would place the responsibility for different policies firmly with those who might prevent the policies discussed for this scenario by resorting to the breakup of international financial investment and trade flows, and civil and international wars.

Target Audience

I am studying economics, finance and other subjects to understand how capitalism works and become able to propose economic policies for transition from capitalism in advanced capitalist countries. Currently there is no significant left movement in such countries, but I am drafting tentative ideas for a wider future audience of prospective government policy makers expected when a financial crisis like 2008 eventually becomes another Great Depression like the 1930s. They are not concerned with some specific PPP project. I am conveying one possible policy option for managing partially socialized and partially still private investment projects using PPPs.

the Nobel family has dissociated itself from the economics prize

One of the most annoying things is to read or hear an economist's views promoted because they have won the Nobel Prize. Hence, it is refreshing to hear that the Nobel family has dissociated itself from the economics prize

There are some good spoofs on this at Improbable Research:

2010 ECONOMICS PRIZE: The executives and directors of Goldman Sachs, AIG, Lehman Brothers, Bear Stearns, Merrill Lynch, and Magnetar for creating and promoting new ways to invest money — ways that maximize financial gain and minimize financial risk for the world economy, or for a portion thereof

2009 ECONOMICS PRIZE: The directors, executives, and auditors of four Icelandic banks — Kaupthing Bank, Landsbanki, Glitnir Bank, and Central Bank of Iceland — for demonstrating that tiny banks can be rapidly transformed into huge banks, and vice versa — and for demonstrating that similar things can be done to an entire national economy.

critique of crisis theory

blog: A Critique of Crisis Theory (from a marxist perspective)

I like the approach and admire the research effort of this blog. The author, Sam Williams, has spent many years studying political economy and is systematically addressing the many and varied interpretations of Marx on crisis theory. He points out that Marx's analysis was unfinished and of course much has happened since Marx's death. His goal is to fill in some of the gaps in Marx's crisis theory as a guide to younger people who will make the future.

Read these sections for starters:
About Me and This Blog
The Problem: Marx Didn’t Leave Us a Completed Crisis Theory

extract:

These writings are built on the foundations of “Capital,” a work that at least in Germany is becoming a bestseller once again. But “Capital” itself, though it lays the foundation, is not a book about the periodic crises capitalist production goes through. Nor is there a section within “Capital” dealing with such crises, as is generally the case with works that popularize the theories of “Capital.”

Since Marx and Engels put so much emphasis on crises in the Communist Manifesto and other works, this omission at first seems surprising. Marx had planned to crown his economic work with a book on the world market, the state, competition and crises. As is well known, Marx did not have the time to write this work. It is, of course, impossible for any other person to write the work Marx might have written if he had had the time.

Of course, you will have to read a fair bit of the original Marx and probably some interpretations of his theory of value as a precursor to understanding the issues discussed on this blog.

Update (28th September): Note the Anti Duhring reference to overproduction (in The Problem: Marx Didn’t Leave Us a Completed Crisis Theory) - that markets can't keep up with continually expanding production which is compelled by the capitalist system - and Sam's implied disagreement with "Marxists" who don't grasp that overproduction is still the key to understanding crisis:

Indeed, many—perhaps today most—Marxists largely disagree with Engels and Marx as well, and deny that industrial overproduction is the essence of the cyclical economic crises that mark the concrete history of capitalism from 1825 onwards

My own study still has some way to go but I look forward to reading Sam's efforts to sort out the issue of whether the current crisis is due to overproduction or financialisation of the economy, an issue which I don't yet understand.

not a triple crisis IMO

update 20th Sept: For the full dialogue b/w me and steve see comments 13, 18, 21, 22, 25, 26, 28, 30, 32, 55, 56 at Can capitalism save the planet?

I left a comment on Steve Keen's blog in response to his recent talk at the Can Capitalism Save the Planet? forum. I only watched the first 9 minute video on his blog (link). I didn't like his triple crisis scenario that economic crisis, peak oil and global warming will combine to create a disaster by mid Century. This is a departure from Steve who up to now has focused on debt deflation and the instability of capitalism developing the ideas first advanced by Hyman Minsky. In response to another complaint in the thread Steve linked to a pdf (A comparison of Limits of Growth with 30 years of reality) by Graham Turner which argues that the Club of Rome Limits to Growth scenarios are being validated.

My comment is #13:

I had a quick look at the Graham Turner paper you linked to. I don’t believe that a computer model at this stage of their development could accurately predict a catastrophe by mid century.

You promoted a triple crisis view in your talk – economic crisis, peak oil and global warming. Each of those issues has its own complexities and specifics. But the computer modelling aspects of the global warming thesis is not its strong point. I read James Hansen’s book and he does not base his dire predictions on computer modelling -he specifically says they are not reliable enough yet – but relies much more on paleo-climate evidence. In light of this how anyone could say that a computer model will predict trends 100 years into the future is beyond me.

You create a bit of dilemma for those who want to discuss this further. Your blog is about debt deflation but in your talk the triple crisis theme was strong. I think the evidence for capitalisms instability is overwhelming but the other issues require extensive discussion in their own right and in how they connect to the economic crisis.

In your response to johnyh I think the issue you are missing is that there is not a linear relationship b/w the science of peak oil and global warming to the policy actions that might be taken in response to that science. The issue is not so much that the science is wrong (although I don’t think there is a consensus on these issues) but that alarmism at the policy level may not be warranted in response. In that respect I would argue that those issues are quite different from the economic crisis

update 18th September: Steve has replied to me as follows, comment #18:

I agree my talk does create a bit of a dilemma for this blog, so I’ll relax my resistance to discussing global warming here for a short while; but I’ll start by putting my position in perspective, in particular about the role of computer modelling here.

We need a bit of a perspective on what that particular computer model–World 3 and its developments that generated the results in Limits to Growth–were actually doing, and what I have come to agree is a fundamental blindspot in the human psyche (I think Sirius here first put this to me), our inability to grasp the impact of exponential trends.

If there is a fixed resource–say land area–and our use of it is growing exponentially and doubles every ten years, and after 100,000 years we have grown to the point where we are consuming 50% of the land, then in 10 years time it will run out.

If we somehow manage to increase the amount of this resource, or say improve our efficiency of use of it by a factor of four, that will buy us another 20 years. A thousand-fold increase in efficiency will buy us an extra century.

So the model was not as such trying to “predict trends 100 years into the future” as to say that IF exponential trends of usage continue THEN given the feedback between exponential trends and fixed inputs, a crisis will occur sooner rather than later. The models also acknowledged that we could perhaps improve our efficiency of usage of fixed resources (though not as a “magic bullet” but as another exponential trend over time), and that if we did and we reduced other factors as well exponentially (pollution) while reduced some pressures to sub-exponential growth (population), we could probably sustain an indefinitely improving standard of living.

That was written in 1972, and almost 40 years later it is manifestly obvious that we haven’t done any of that (save a continuing tapering in population growth which is still nonetheless growing); if anything we’ve increased the intensity of our exponential loads on the planet.

So the models were not so much a prediction as a warning that we had better come to understand the dilemma of exponential growth on a finite planet sooner rather than later. I don’t think there is much doubt that we have failed to do that, and the “climate sceptic” position, though it’s not consciously trying to refute that proposition, is in effect delaying us coming to terms with it.

My reply back to Steve #21:

Thanks for relaxing the guidelines.

I agree that there are always limits to exponential growth and that not everyone understands exponential growth. However, peak oil is not a problem given that we have long term energy alternatives, such as nuclear. The real problem here is the lack of R&D being devoted to energy alternatives. Nuclear would also solve the problem of excessive CO2 entering the atmosphere.

The real problems here are economic (nuclear is still more expensive than fossil fuels) not environmental.

I tend to agree with John McCarthy (progress and its sustainability) that in the case of energy supply the limit is roughly a billion years since nuclear can supply our energy needs for at least that time and in the case of population it “will eventually be limited by a sense of crowdedness rather than by material considerations”

categorisation of uncertainty

Interesting essay and comment thread about Doubt on climate scientist Judith Curry's new blog.

She proposes an Italian flag model inviting participants to cast their percentages wrt focus questions or hypotheses on their opinions about evidence for (green), evidence against (red) and uncertainty / unknowns (white):

She outlines a couple of hypotheses, one from the IPCC and one of her own about climate in the 21st Century and provides her own percentage estimates in the different categories for these. Her position is even handed in attributing climate change equally to human and natural factors with the uncertainty (white area) being dominant in her judgment.

Her main aim is to emphasise the uncertainty of much of the science in contrast to the name calling between "alarmists" and "deniers" that spoils much of the debate.

Roger Pielke snr left a comment there drawing attention to his hypotheses 1, 2a and 2b, which is an alternative way forward for the discussion. I have blogged about the Pielke snr hypotheses earlier

One of the critical comments, from Dan Hughes, concluded:

I don’t get the litmus-test question or the Italian-flag approach. I think we need to get a much better handle on many of the critically important aspects. While a top-down problem can be specified based on very little truly understood information, and even mis-information, and even not-applicable information, successful solutions are always, and I do mean always, based on extremely well-understood bottom-up information

I think that's correct from a scientific point of view but Judith is making an attempt to at least dampen down an acrimonious discussion which has got out of hand.

I left a comment there drawing attention to other ignorance categorisations, which I have blogged about in the past:
Five Orders of Ignorance
we don't know what we don't know

Actually, my main thought wrt the Italian flag categories was that it could be applied to other areas outside of climate science, such as political economy. In response to this focus question:

Will the current economic crisis develop into something akin to the Great Depression?

My guesses on this one are:
Green (evidence for): 20 percent
White (unknowns, uncertainties) 60 percent
Red (evidence against) 20 percent

I say guesses because the distinction b/w evidence and belief is not clear to me. Evidence is evidence that you believe in.

intellectual journey

The intellectual journey we decide to go on in the end is not a product of the extent of our intelligence or our curiosity about the world. The decisive factors are social class outlook, the time we choose to spend on slow, deep thinking (reading and thinking about book length analysis) and an intangible which could be called "conquering spirit"

A friend sent me this article (Busted: Stories of the Financial Crisis) by Joshua Clover in The Nation.

He starts with Milton Friedman, Ayn Rand and Alan Greenspan then proceeds to Hayek, then Zizek, then reviews an entertaining book about the current economic crisis written by a novelist, John Lanchester:

credit default swap: "It's as if people had used the invention of seat belts as an opportunity to take up drunk driving."

and so on.

But Joshua Clover does not stop there because the analysis is not complete. He goes onto discuss Marx's Capital and modern interpretations by David Harvey, Ben Fine and Alfredo Saad-Filho because the current mainstream analysis is inadequate.

"Not surprisingly, economists cannot borrow, even at low levels of interest, the insights most needed: the basic understanding that capitalism's flaws are internal to its own logic and can't be whisked away by another round of financial regulation or everybody promising to be less of a creep. It is indeed a compulsion, and it ends poorly"

I wonder how many others are taking a similar intellectual journey. It is unusual to see this sort of honest self reflection in the mainstream media.

Bernanke's admission and Keen's critique

Bernanke has admitted that the "recovery" has stalled:

In sum, the pace of recovery in output and employment has slowed somewhat in recent months, in part because of slower-than-expected growth in consumer spending, as well as continued weakness in residential and nonresidential construction
- The Economic Outlook and Monetary Policy, August 27

Steve Keen's analysis (What Bernanke doesn’t understand about deflation) is that although Bernanke has read Irving Fisher (who was burned by the Great Depression but then underwent an intellectual transformation) he didn't understand him fully:

You would think Bernanke, as the alleged expert on the Great Depression—after all, that’s one of the main reasons he got the job as Chairman of the Federal Reserve—had read Fisher’s papers. And you’d be right. But the problem is that he didn’t understand them—and here we come back to the belief problem. The Great Depression forced Fisher—who was also a Neoclassical economist—to realize that the belief that the economy was always in equilibrium was false. When Bernanke read Fisher, he completely failed to grasp this point.

You can read Irving Fisher's analysis of the Great Depression here (pdf, 21pp):
The Debt Deflation Theory of Great Depressions (1933) by Irving Fisher

michael perelman's analysis of the economic crisis

I watched the above video, which is part of a series he is making on the economic crisis. The video presentation is of poor quality but I quite like his calm or laconic style of delivery. Here is a summary of the main points:

The overall or inherent tendency of the economy is towards falling marginal costs and high fixed costs, in other words for the economy to enter a deflationary spiral. (aka the tendency for the rate of profit to fall, although Perelman does not use that phrase) Perelman outlines 6 reasons for this and also discusses the contradictions involved in some of the factors. Another central point he stresses is the importance of competition between companies in the trend towards lower prices. When faced with this reality companies or governments have these options:

1) Launch price wars without reinvestment, keep that going for as long as possible.

2) Global labour arbitrage, cutting wages and benefits, by off shoring

3) Compete by investing in new technology. This increases output (overproduction, although he does not use that word) and causes prices to fall. One of the problems here is that in a competitive environment business throws away technologies before they have paid for themselves, to replace them with even newer technologies.

4) Governments may intervene to blunt the effects of competition by fiscal and monetary policy. One negative of this is that when the economy is going well then companies will tend to not invest in new technology and the economy then stagnates on the supply side. Another tendency is for governments to indulge in military spending for mainly economic reasons, aka military Keynesianism

5) The strengthening of intellectual property law, creating cartels, is another response to increased competition. One effect of this is to severely limit the development of science and technology. There is a disencentive for others to follow in the footsteps of the original creators. The violation of intellectual property rights leads to high legal costs for those who try to break through this barrier and creates uncertainty.

6) Growth of the financial sector. Once again this is contradictory. It is true that many companies need credit to get off the floor. However, valuable resources are siphoned off into the financial system. For example, during the dot com era a good number of physicists and mathematicians went into the financial system, rather than doing anything directly productive. Finance itself becomes a disciplinary force on business. Business ends up following finance more than it follows markets. A business may cut back on R&D because that creates a cost with an uncertain payoff. If your profits are low then financial players may come and take over your company.

The Invisible Handcuffs is the name of Michael Perelman's forthcoming book. For his intellectual biography and descriptions of his other books see his intellectual biography page. On that page, summarising one of his books, he again stresses the problem associated with competition:

On a deeper level, this book calls the conception of competition into question. I show that intense competition is equivalent to a depression, yet most economists believe that competition is good and depressions are bad.