Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
We are not talking about labor productivity here (low individual incomes relative to individual productivity), which can be looked at as returns on investments in human capital. That is a separate distributional issue that is not strongly linked to the current economic crisis -- there is not relationship yet hypothesized between countries suffering in the current economic recession and human capital levels in terms of education and individual compensation.

When labour productivity goes up, some combination of the following must happen:

  1. The length of "the full work week" drops.

  2. Unemployment rises.

  3. Consumption rises (through private or state spending).

This must happen, because Stuff is more or less conserved in each microeconomic transaction.

  1. Is considered ideologically unacceptable.

  2. Is considered tactically unacceptable (the bread must flow and the circuses kept running).

This means that, in order for the political system to continue to function as advertised, 3) must happen.

Increased consumption can happen either through

A) Tax-financed fiscal and industrial policy (which usually ends up being redistributive),

B) Increased real median incomes, or

C) Loan-financed spending (public or private).


A) Is prohibited by The WestTM's official religion.

B) Is considered ideologically unacceptable.

This leaves only C) which is precisely what lead us into this mess.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 6th, 2009 at 06:05:55 AM EST
[ Parent ]
it should be frontpaged

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Jun 7th, 2009 at 05:16:34 AM EST
[ Parent ]
I'll do this and the Deutsch Bahn thing DoDo flagged from the Salon tomorrow afternoon. First item on the agenda is a post-mortem on the Danish EP elections (spoiler: The bad guys didn't win).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 7th, 2009 at 06:08:53 PM EST
[ Parent ]
here's some things to consider in your diary:

You missed investment, which would be four possibilities of increased labor productivity, not three.  It is entirely possible that investment can increase in addition to or even in lieu of consumption.  

You also missed a fourth possibility on how consumption (or investment) can be increased:  D) Plunder. Through use of power, strong groups can simply take resources from other, weaker groups.  This means that it is entirely possible and even sustainable for a strong enough group of political elites (such as, say, the financial-governmental-academic-military class of the United States) to redistribute wealth from other laborers and capitalists throughout the world when needed to prevent a collapse of the social system.  

I was wrong when I said "no relationship has yet been hypothesized" between labor productivity and the current economic crisis.  There is, of course, a very solid hypothesis, called Marxism, for that.  What I meant was that a decline of labor productivity has not been advanced as a cause of this crisis.  Your argument, however, is the opposite, and it's the Marxist one.  Most schools of Marxism also predict that redistribution of resources from some capitalist countries to others (e.g. WWII) allows a recreation of the relationship between capital and labor that can conceiveably provide for an eternal capitalist system. (Something which Marx himself hadn't considered.)  Plunder by some capitalists of the wealth of others allows capitalism to continue by recreating the conditions of surplus profit in plundered areas.

What are some examples of plunder in a modern economy?  War, of course, is one -- the devaluation of capital through physical destruction of capital and labor.  Another one, however, is when a lender must transfer wealth to borrower who defaults or otherwise changes in payment arrangements (e.g. inflation). The borrowers, on net, have gained in the current crisis by not repaying banks, and strong, national borrowers such as the US, gain at the expense of foreign lenders such as the Chinese, by both not repaying investments in things like mortgage-backed securities and by paying effectively negative real interest on the only available means of insuring wealth -- government securities. Both involve massive transfers of resources from back weaker capitalist states to stronger ones.

Plunder, in this way, is not prohibited by western ideology. (I'd argue, rather, that it is central to it.)

by santiago on Mon Jun 8th, 2009 at 03:40:22 PM EST
[ Parent ]
For the purposes of this model, investment (in real productive assets) and consumption are the same side of the same coin. The only material difference between the two (at least the only one that matters to this model) is that investment is much more pro-cyclical than (other) consumption.

I further take as a given that actual investment in the real, productive economy cannot take place without an activist industrial policy, and that even the private sector parts of a successful industrial policy will end up being more or less redistributive from rich to poor, on account of its tendency to promote near-full employment.

But your note on plunder as a means of increasing consumption is well taken. I'll have to mull over it for a bit to see what that means for the model. But I suspect that it will end up being rolled into the Ponzi lending bullet, because it's equally prone to frequent and messy crashes (if anything, the crashes in question are even messier).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 8th, 2009 at 04:22:34 PM EST
[ Parent ]


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