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This is really important IMO.

There's still no meaningful consensus on "what happened in the 70s" - and yet nailing down this cause is vital to understanding everything that follows.

Were the "Trente Glorieuses" doomed to end? Or were they ended by pressures (and resulting actions) that could have be turned to different outcomes?

(Shortfall of productive investment sounds like a very interesting starting point.)

by Metatone (metatone [a|t] gmail (dot) com) on Sat Aug 16th, 2014 at 05:56:47 AM EST
[ Parent ]
Economically, the Americans finished consolidating their empire.

As long as they were (re)building, there was investment opportunities excess of maintenance and whatever upgrades were offered by technological progress.

Once the empire reached its maximum extent, growth could only happen as a consequence of technical innovation. And so both the volume of investment opportunities fell, and the share of investment going into maintenance rather than new growth increased.

The game changed from being revenue creation to being revenue capture.

Politically, this happened to happen at the same time peak US continental oil shifted the Texas oil companies from the "full employment" camp to the "deregulation" camp.

And the rest is history.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Aug 16th, 2014 at 07:08:41 AM EST
[ Parent ]
There is currently an enormous need for productive investment in infrastructure in the USA and the world in general. This includes renewable power and the electrification of rail transport. The problem is that, to be effective, the construction of electrical power infrastructure needs to be done at no or very low interest rates and none of those with money to invest find that attractive - this despite the continuing ZIRP. One possibility would be a public offering of bonds to finance wind farms with the explicit backing of the government for principal and interest at the minimum rate that would see them sold - target range of 2-3%. There are lots of retirees who are afraid to expose their savings to risk and can only get a fraction of a percent return on a guaranteed deposit. I see the problem as political. Such a program would benefit all from reducing GHGs and capping electricity prices to stimulating employment, but it undercuts the interests of the fossil fuel industry, and thus is very difficult to enact.

The bottom line problem is that we need to downsize the financial sector. The effect of its operations are to impose the private sector equivalent of a VAT, likely over 20%, on a huge range of activities - any thing it touches.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 16th, 2014 at 11:08:30 AM EST
[ Parent ]
Of course this all could be 'financed' directly by the government of the USA - in a better world.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Aug 16th, 2014 at 11:41:44 AM EST
[ Parent ]
Chapter Two will develop the idea of capture of governments by capital... Coming up.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Sun Aug 17th, 2014 at 09:05:30 AM EST
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That sounds a lot like Tyler Cowen's little book, "Great Stagnation." All the low hanging fruit have been picked.

I think my questions are:

a) What's stopping investments outside the empire?
(Lots of building still needed across the world.)

b) Your post implies that the whole set of economic theories basically only works while you have an expanding empire. After that the rate of growth limited by productivity isn't a zero-sum game, but very close to being so?

by Metatone (metatone [a|t] gmail (dot) com) on Mon Aug 18th, 2014 at 05:12:45 AM EST
[ Parent ]
Well, nothing's stopping investments outside the empire (capital controls have gone out of fashion). This is one reason the rich get richer... Among the people who got the big tax windfalls, those who don't mind a bit of risk invest for high returns in developing nations... Helps the balance of payments in the investor's country. The others buy government bonds. None of this actually benefits their compatriots or the real economy in their country (except marginally through the provision of luxury goods and services).

Your point b is something I have always believed... Club of Rome and all that... It's about time it became fashionable.  

Indeed, it seems intuitively obvious that high rates of return on capital are only possible in a growing economy. So the risk-averse capital is not, in the aggregate, going to get a good rate of return. In the long term, perhaps investors will adjust their expectations to moderate, sustainable returns. In the meantime, with a huge amount of productive capacity idle, we've got a capital strike on our hands.

Government intervention seems the only rational possibility. But that would require rational government.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Aug 18th, 2014 at 06:35:02 AM EST
[ Parent ]
eurogreen:
it seems intuitively obvious that high rates of return on capital are only possible in a growing economy

Which leads us to consider the prodigious rise of the financial sector. Which compensates for lack of growth by whipping up high rates of return based on the capture of future flows.

No growth now? Mine the future!

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Aug 18th, 2014 at 07:00:37 AM EST
[ Parent ]
This is emphasised by Streeck, who notes the huge growth of the financial sector starting from the 80s (public debt boom) and contin through the 90s and 2000s (private debt boom) -- a real goldrush.

Where now for capital? To the moooon?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Aug 18th, 2014 at 09:02:04 AM EST
[ Parent ]
What's stopping investments outside the empire?

Investors like to get their money back.

"Outside the empire" means "outside a legal framework which I can use to obtain recourse against people who default on our business dealings."

Because the ability to reliably obtain recourse against people who default on your business dealings is a pretty good working definition of the difference between "inside" and "outside" the empire.

(Lots of building still needed across the world.)

The point is not that there is a lack of investment opportunities. The point is that there are fewer than there used to be, and this shifts power toward rentiers. This power is then used to change the rules of the game to be more favorable to rentiers, which further shifts power to rentiers.

Just like, in the expanding empire, producers gain power from exploiting previously unclaimed (by stakeholders internal to the empire) economic niches, and then change the rules to favor producers, which opens up even more previously unclaimed niches to exploitation.

Your post implies that the whole set of economic theories basically only works while you have an expanding empire.

Yes. Why is this surprising?

Growing empires attempt to explain their world, in order to better realize opportunities, since power resides with those who have a vested interest in opportunities being realized.
NB: This is not necessarily (or even typically) the same group of people as the ones who do the actual work of realizing the opportunities.

Stagnant empires invent excuses for looting.

An economic theory which "works," in the sense of providing actionable explanations for what drives economic activity, is actively contrary to the interests of those who guide the direction of a stagnant empire.

After that the rate of growth limited by productivity isn't a zero-sum game, but very close to being so?

I suppose that is a matter of taste. Personally, I find that one per cent per year compounding adds up to quite a nice positive sum over a few decades.

But relative to the expanding empire? Absolutely.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 18th, 2014 at 01:10:15 PM EST
[ Parent ]
Metatone:
After that the rate of growth limited by productivity isn't a zero-sum game, but very close to being so?

Only relative to the Jumbo-burger profits they are used to.

The world could hum along happily at 4% ROI, and say inflation at 2%, but once you've seen Pareee... (Once you've tried the hard stuff).

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon Aug 18th, 2014 at 01:40:29 PM EST
[ Parent ]
JakeS:
And the rest is history.

"History" features notably:

  • Globalisation
  • Financialisation
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Aug 18th, 2014 at 07:17:07 AM EST
[ Parent ]
As Bruce is fond of pointing out, there is no such thing as "Globalization."

There is a mix of policies for governing international trade and tribute. And there is a number of technologies to mediate international trade and tribute.

But the policy mix governing international trade and tribute is not in any important way interdependent, nor dependent in any straightforward way on the technology involved.

"Financialization" is just a polysyllabic euphemism for "looting."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 18th, 2014 at 01:32:53 PM EST
[ Parent ]
Because financiers aka venture capitalists have a divine right to maximize their investment at the expense of all others...and f*ck the externalities

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Aug 18th, 2014 at 02:51:55 PM EST
[ Parent ]
Metatone:
There's still no meaningful consensus on "what happened in the 70s"

OPEC realised it had global muscle beyond its hitherto wildest dreams?

Metatone:

Or were they ended by pressures (and resulting actions) that could have be turned to different outcomes?

See: Jimmy Carter, white house roof solar panels.

Pretty much every wrong energy choice there was to make was made, and it gets worse all the time, even if some things have improved notwithstanding.

That's when corporate power realised it had to utterly capture government, enter stage right, Ronnie 'seen-one-redwood, seen-'em-all' Raygun!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat Aug 16th, 2014 at 09:00:16 AM EST
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Oil Cartel caused cascading price increases in most everything in the west as a much bigger share of overall economic output went to the cartel nations. About the only government that took effective action to address the root cause of that problem was France - The nuclear buildout, ramping up production of the 2CV and other very high-milage cars, the TGV (Electric, so... Powered by the nukes.) - These were the tools actually available in the 1970's

Solar and wind in that era was utterly inadequate technology -  I hope this is not something anyone wishes to dispute?

 Everyone else started shooting themselves in the foot, then reloading and shooting the other foot - The problem was real value flowing out of what had been a fairly closed system of labor of capital to new actors who provided no new product in return, but the response was to slam on the breaks on wages via unemployment. Which is utterly insane, and acted as a drag on even those nations responding initially sanely.

by Thomas on Fri Aug 22nd, 2014 at 03:45:25 PM EST
[ Parent ]

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