Terrible to see that this diary has no comments.

I meant to... Still mean to.. But yet again have to go off and do something else. Back later ;)

When locusts move on, they leave nothing behind

The paper is interesting to me, because I've been groping around for some time now, trying to understand the interaction of increased productivity with aggregate demand that does not seem to be keeping pace.

I saw this yesterday, but was unable to quickly find the source of the best supporting analysis of which I am aware, J.A.Hobson's Imperialism.  Now I have found it :

It is this economic condition of affairs that forms the taproot of Imperialism. If the consuming public in this country raised its standard of consumption to keep pace with every rise of productive powers, there could be no excess of goods or capital clamorous to use Imperialism in order to find markets: foreign trade would indeed exist, but there would be no difficulty in exchanging a small surplus of our manufactures for the food and raw material we annually absorbed, and all the savings that we made could find employment, if we chose, in home industries.

There is nothing inherently irrational in such a supposition. Whatever is, or can be, produced, can be consumed, for a claim upon it, as rent, profit, or wages, forms part of the real income of some member of the community, and he can consume it, or else exchange it for some other consumable with some one else who will consume it. With everything that is produced a consuming power is born. If then there are goods which cannot get consumed, or which cannot even get produced because it is evident they cannot get consumed, and if there is a quantity of capital and labour which cannot get full employment because its products cannot get consumed, the only possible explanation of this paradox is the refusal of owners of consuming power to apply that power in effective demand for commodities.

But it may be asked, "Why should there be any tendency to over-saving? why should the owners of consuming power withhold a larger quantity for savings than can be serviceably employed?" Another way of putting the same question is this, "Why should not the pressure of present wants keep pace with every possibility of satisfying them?" The answer to these pertinent questions carries us to the broadest issue of the distribution of wealth. If a tendency to distribute income or consuming power according to needs were operative, it is evident that consumption would rise with every rise of producing power, for human needs are illimitable, and there could be no excess of saving. But it is quite otherwise in a state of economic society where distribution has no fixed relation to needs, but is determined by other conditions which assign to some people a consuming power vastly in excess of needs or possible uses, while others are destitute of consuming power enough to satisfy even the full demands of physical efficiency.

Our present dilemma is not for want of cogent analysis.
The date of this work is 1902.  Hobson was a regular contributor to the (Br) magazine The Nation. He was a reporter for the Manchester Guardian covering the Boer War, which had a profound effect on his thinking.  His major concern for the UK was the issue of the distribution of wealth.  He favored a mixed system with some industries being nationalized. He was considered to be somewhere between the Liberals and the Socialists of his day.

The problem of distribution of wealth remains the most fundamental and the process Hobson analyzed under the concept of Imperialism continues, as in Iraq, but has also metastasized into new ways for a tiny elite to extract vast sums from the masses. "Financalization" and "bubbles" are two examples.  How do we get people to "wisen-up"?  At least with the Vikings, the locals knew they were being raped and pillaged.

If sanity be culturally normative, then by the norms of this culture I claim insanity.

Being the old fashioned fart that I am, there's a simple answer to:

... the interaction of increased productivity with aggregate demand that does not seem to be keeping pace.

Aggregate demand is not keeping up with increased productivity because the majority of the world's population don't make enough money to eat 3 square meals a day much less purchase consumer goods.  When all a person's salary is going to food and rent there isn't anything left over for that snazzy puce and mauve digitally controlled FingerPlucking Nose Hair Removal System™ (with the KungFu© grip!)

In the First World, the trans-nats have gone about their merry business destroying local economies and now they're wondering where all the local consumers went that used to purchase their goods.  

A regular practice of mine, back when I had a subscription to the Economist, was to check the Productivity Increase Chart in the back pages against the Wage statistics.  The only country that regularly matched Productivity Increase and Wage Rate Increase was Sweden.  The US regularly had increasing Productivity and decreasing Wages.  The other countries listed fell somewhere in the middle.

It doesn't matter when n workers go from making a to 2_a_ number of goods if the price of those goods means there is only a amount of goods that can be sold because nobody else can afford them.  

Och nu den svenska kocken bakar en Alaskan älg jägare. Bork! Bork! Bork!

On the producivity/demand question, Crotty has a 2002 article, Why Do Global Markets Suffer From Chronic Excess Capacity?

The explanation for the long-term character of excess capacity presented here integrates insights from both Joseph Schumpeter and Karl Marx and can be summarized as follows. The shift to neoliberal policies in most of the world beginning in the late 1970s created additional impediments to demand growth in a world economy already reeling from two oil price shocks and restrictive macro policy imposed in response to the inflation they caused. Sluggish demand growth in turn led to a sharp rise in excess capacity in globally contested industries. Meanwhile, liberalization raised competitive intensity across the globe by eliminating existing barriers to the movement of goods and money across borders that protected the market power of national oligopolies. High initial excess capacity combined with the collapse of barriers to the free movement of capital triggered competitive wars for survival. As is explained below, this led firms to adopt policies that both further constrained global demand growth and expanded industry capacity at a pace faster than would be understandable within either a neoclassical or Keynesian framework, reproducing excess capacity. Global neoliberalism has thus unleashed a destructive dynamic interaction between its macro and micro levels of activity, a kind of vicious economic circle.

If I get it right (?), the very freedom globalisation accorded, which allowed wage arbitrage to keep real incomes down for the masses (on which the venerable AT is of course right), also produced competitve conditions that led to a capacity race.

All which doesn't tell us how to stop the vicious circle...

When locusts move on, they leave nothing behind

World GDP growth averaged 3.3% a year in the early Neoliberal period of the 1980s, then slowed dramatically to 2.3% from 1990-99 as Neoliberalism strengthened, making the 1990s by far the slowest growth decade of the post war era

Again from 2000 (and it would be interesting to see an analysis of developments hence), CEPR's,
The Emperor Has No Growth: Declining Economic Growth Rates in the Era of Globalization:

- From 1960-1980, output per person grew by an average, among countries, of 83%. For 1980-2000, the average growth of output per person was 33%.

• Mexico would have nearly twice as much income per person today if not for the growth slowdown of the last two decades; Brazil would have much more than twice its current per capita income.
  
• Eighty-nine countries - 77%, or more than three-fourths - saw their per capita rate of growth fall by at least five percentage points from the period (1960-1980) to the period (1980-2000).
  
• Only 14 countries - 13% - saw their per capita rate of growth rise by that much from (1960- 1980) to (1980-2000).
  
• In Latin America, GDP per capita grew by 75% from 1960-1980, whereas from 1980-1998 it has risen only 6%. For sub-Saharan Africa, GDP per capita grew by 36% in the first period, while it has since fallen by 15%.

Even where high growth rates were achieved, as in Southeast Asia, they were still better in the earlier period. The only regional exception to this trend was East Asia, which grew faster from 1980 to 1998 than in the previous period. But this is due to the quadrupling of GDP, over the last two decades, in China (which has 83% of the population of East Asia).

2000-2005 world gdp growth numbers are around 3% annually, it seems, according to one UN organization at least.

The road of excess leads to the palace of wisdom - William Blake

I think this analysis is not proving anything. In the absense of technical or organisatorical or whatsoever innovation, which certainly profits from globalisation, my first order expectation of growth would be kind of building the economy up and then a static state. The idea that the economy grows exponential over the long term is just ridiculous. A hairdresser won't get much more productive over time at all. There maybe some industrial branches where you can go on and on and invest capital to increase productivity, but certainly there is a decline in what productivity increase you get even there for the buck and the analysis does even take GDP and not GDP/capita.
While the neoclassic economists might work with assumptions, which are simply not valid for many poor countries, I think that one reason for the sluggish growth in Africa and not-east Asia, is, that the we were not neoliberal enough. Trade is good, but if poor countries (who may indeed need some protectionist measures) open their markets to the rich nations, but the rich nations don't open their markets to the poor nations (which, as most poor nations start with agricultural products in the beginning, was the case) it can't work. And yes, there were lots of neoclassical economists, telling that.
China was big enough to accept only deals, which gave rather good terms for them. Due to their size, their political power and their political stability, they were in a much better position to make deals, than most African nations. And especially the political stability is something you need, when you don't want export only agricultural goods, because you need long term investment in fabrics.

However, this system tends to reduce aggregate demand, because the needs of the wealthy are actually quite constrained. And the needs of the non-wealthy cannot create "economic growth" because they have no wealth.
It tends to reduce interest for debt so long, until there is someone willing to go into debt and thereby creating demand. A problem however indeed was the different propensity to do so across different nations.
James Crotty's assertion on interes rates ignores certainly some very important points. He compares 10 year bonds, while the central banks control mostly the short term rates. My reading on what his time bunches.
50-70: inflation is, despite higher than today, reasonable contained and so are inflation expectations.
71-82: inflation expectations tend to be seriously lower than inflation, due to the good performance before. Therefore the very low real rates.
83-94: the central banks squeeze out inflation of the system. As always (and so today, long term inflation expectations are well anchored below 2% despite inflation at ~4%), it takes some time until inflation expectations adjust to inflation. Therefore the real rates tend to be rather high.
It is interesting that in paper written in 2000 he stops 94, despite global trade boomed even more in the 90s than before, because the CBs were eventually sucessful in bringing down inflation expectations, and the 10 year rates in the late 90s were low, and are today e.g. in the US negative. Probably Crotty worships Greenspan's performance on the issue of setting rates.

His datings are anyhow strange. Global trade as I said has increased strongly most recently, what about domestic neoliberalism? In Germany, the states share of GDP was by far the lowest in the era 50-70 (around 35%), independent if compared with 71-82 (around 47%), 83-94 (around 47% with a dip in the late 80s to 43%) or  the late 90s (the most state dominated economy we ever had in the Federal Republic of Germany). Only most recently, since about 2004, we have a sharp decline in the state's share. In many European countries it will not look very much different. If, as Crotty was at the time at a US university, you focus on the US, you may get different results. But that is irrelevant, as he speaks about the globe and as even Europeans (not to speak of the fact, that in the 80s more people lived in officially communist countries than allies of the west) had no real neoliberal policies until the end of the 80s, 94 - 2000(8) would have been the most relevant time.

Furthermore international trade and domestic deregulation are not necessarily compounded. To put it into one basket will end up with protectionist measures, which won't give poor nations the possibility to follow the mercantilist way to wealth, which was gone before by Germany and the USA (both in the 19th century) and Japan and the 'Asian Tiger' states and currently China. Any kind of lending and health care regulation, Tobin tax, public ownership of companies, income redistribution via taxes, and much more, is completely independent of the question, if you allow trade with other nations.


Lich King/Caribou Barbie 08
Pain brings Katharsis

The main argument in favor of less regulated commerce, both domestically, in the form of deregulation, and internationally, via more liberal trade regimes, is that it generates higher growth.

[spluttering noises]  But surely this should be the best argument against it, and against usury-capitalism in general...  How many times must it be said:  growth without limits, on a finite planet, is suicidal;  "growth" under industrial capitalism equals the accelerating liquidation of biotic and mineral resources.

Here's an essay by Berry that "strikes the root" so to speak.

The problem with us is not only prodigal extravagance but also an assumed limitlessness [...]  The world-ending fire of industrial fundamentalism may already be burning in our furnaces and engines, but if it will burn for a hundred more years, that will be fine. Surely it would be better to intend straightforwardly to contain the fire and eventually put it out! But once greed has been made an honorable motive, then you have an economy without limits. It has no place for temperance or thrift or the ecological law of return. It will do anything. It is monstrous by definition.

In keeping with our unrestrained consumptiveness, the commonly accepted basis of our economy is the supposed possibility of limitless growth, limitless wants, limitless wealth, limitless natural resources, limitless energy, and limitless debt. [...]

This fantasy of limitlessness perhaps arose from the coincidence of the Industrial Revolution with the suddenly exploitable resources of the New World—though how the supposed limitlessness of resources can be reconciled with their exhaustion is not clear. [...]

Our national faith so far has been: “There’s always more.” Our true religion is a sort of autistic industrialism. People of intelligence and ability seem now to be genuinely embarrassed by any solution to any problem that does not involve high technology, a great expenditure of energy, or a big machine. Thus an X marked on a paper ballot no longer fulfills our idea of voting. One problem with this state of affairs is that the work now most needing to be done—that of neighborliness and caretaking—cannot be done by remote control with the greatest power on the largest scale. A second problem is that the economic fantasy of limitlessness in a limited world calls fearfully into question the value of our monetary wealth, which does not reliably stand for the real wealth of land, resources, and workmanship but instead wastes and depletes it.

That human limitlessness is a fantasy means, obviously, that its life expectancy is limited. There is now a growing perception, and not just among a few experts, that we are entering a time of inescapable limits. We are not likely to be granted another world to plunder in compensation for our pillage of this one. Nor are we likely to believe much longer in our ability to outsmart, by means of science and technology, our economic stupidity. The hope that we can cure the ills of industrialism by the homeopathy of more technology seems at last to be losing status. We are, in short, coming under pressure to understand ourselves as limited creatures in a limited world.

No economic doctrine that promises Growth is sane or practical in a world of limited resources -- not without mass slaughter of some designated group of Others so as to appropriate their goods, land, etc. to enable Growth for Us.  And this is exactly what is happening -- in slo-mo right now, but gathering speed as the crash of (especially) biotic resources continues.

I have been reading Gary Nabhan's book on the traditional foodways of "Salmon Nation" (the coastline of NW America for which the salmon are a keystone species.  Practically every traditional food species in this region is now depleted, endangered, or extinct.  And this is on a continent whose dominant caste (the Anglo invaders) proudly call themselves the wealthiest people on Earth.  This is not wealth.  This is insanity.  This is a derelict burning his own coat to stay warm, and congratulating himself on his cleverness for so doing.

As Berry notes, trenchant as ever:

The entire contraption of “Unbridled Energy” is supported only by a rote optimism: “The United States has 250 billion tons of recoverable coal reserves—enough to last 100 years even at double the current rate of consumption.” We humans have inhabited the earth for many thousands of years, and now we can look forward to surviving for another hundred by doubling our consumption of coal? This is national security?

The issue with neoliberalism is not that it failed to deliver Growth -- nothing, no cult, no theory, can deliver general Growth in a closed system -- but that it delivered even more inequality, violence, injustice and vandalism than competing theories, even though those competing theories were equally fantastical and destructive at heart.

It is time we came fully to grips with Berry's imho accurate observation that ours is at heart a culture of conquest and expansion;  that (reverting to R Manning for a moment) the wheat/beef agricultural model on which our culture rests has always, repeatedly over millennia, exhausted the soil and driven us to destroy and usurp our neighbours;  that the cultural mythos of expansion, Growth, and "the frontier" is so deeply embedded in our guts that we may very well pull a Jared Diamond Collapse rather than re-evaluate our premises and learn to live within our means.  And this pernicious notion of Limitlessness haunts our every endeavour and vitiates all our "good intentions":  when asked to reduce out fossil footprint, our instinctive response is to go out and buy a Prius -- i.e. consume more resources, acquire more, spend more, occupy more space and time, get a new shiny toy, steal more resources from neighbours and from the future.  It's always about More and New.

We are imho in a poor position to critique neoliberalism if we still believe in Growth and are still debating over how best to enable it.   The great challenge of our time is to grow up and come to terms with limits;  continuing to daydream about infinite growth only wastes time that we could have spent applying some braking action before the crash.  We might even divide the challenge of our time into two great efforts -- one is Repair, or trying to fix the dreadful damage we have already done;  the other is Housekeeping, or learning to live within our means and make the best of what we have.

Neither of these efforts will be undertaken seriously so long as we daydream about a world without limits, and institutionalise that daydream in economic theories based on exponentially compounding interest... theories deriving from a brief blip in history when a transient technological and epidemiological advantage made my Anglo ancestors the most successful thieves and marauders in human history.

The difference between theory and practise in practise ...