Wednesday, October 29, 2008

notes on Keynes

the extremists want to telescope the period of the seven barons with the Thermidor of the Lubyanka; the moderates conceive of two distinct stages

Against the recent enthusiasm in Britain for Keynesian deficit financing, notes on the same:

1. That Britain is so open to imports obviously weakens the relationship between consumer spending and domestic production. Nevertheless we know deficit financing works in a way because the recent period of alleged prosperity was based on consumers' deficit financing. The only problem has been the accumulation of massive debt.

2. The change to Keynesianism would essentially involve the government taking on the function of generating the debt, servicing it, and directing spending. I suspect the banks want precisely this change and nothing more: the old regime now underwritten by the state.

3. Keynesianism isn't strictly the application of Keynes' system - it would not be possible to calculate the various functions that supposedly determine the economy's headline figures. What we mean is a system of deficit finance understood pragmatically by the relevent actors and rather loosely based on Keynes' theory.

4. The more likely reason for the effectiveness for deficit finance in some conditions is that the distribution of income and the distribution of goods sold affect overall output - the Kaleckian rationale for deficit finance. Hence the valid theory of the practice arguably ought to abandon Keynes' designations of output as effectively homogenous and employment as effectively homogenous.

5. Any positive effect through redistribution can be offset by inflation redistributing incomes the other way - again this isn't part of Keynes' theory.

6. Since we know that the private regime of deficit finance has crowded out real capital investment we shouldn't expect the public version to be any different.

7. There's no reason to expect that the public version of deficit finance won't result in the accumulation of unserviceable debts or massive debts that distort government policy if they are to be serviced. This has been the experience of virtually every African country, for instance.

8. The accumulation of massive public debt triggering a payment crisis can actually serve to facilitate the consolidation of ruling class power, as happened in Russia in the nineties. I shouldn't think this is the plan but it's a possible outcome of a vain policy getting out of control.

Friday, October 24, 2008

the decline of stockholding efficacy

The rate of profit has had a falling trend over the past fifty years. This is an alarming feature of capitalist development. I might not have taken this as seriously as I should have since the consequences of a true decline in the rate of profit would be very serious indeed. I'll come back to what these consequences would be. The phenomenon was analysed in The Economist a while ago and they saw it in terms of a transfer of property income from capitalists proper, that is: shareholders, to technocrats, including the celebrated company CEOs. As such it was seen to be not entirely unhealthy; but what would they find unhealthy outside an imminent crisis? I don't want to be overly focused on the history of trends in marxism, but inevitably this phenomenon of falling profits has to be related to Karl Marx's "tendency of the rate of profit to fall". While the theorists of the political movements that held to marxist ideas (basically, Trotskyists) have tended to interpret falling profits as an expression of Marx's "tendency", proponants of revisionist "Sweezy type" marxism, sticking closer to liberal economics, have argued that property income as a whole has in fact risen (as "profit" has been displaced into other income streams, chiefly into income from interest). I think the Sweezyists are probably right about this (but not inevitably and not inevitably for all time). For reference the two things are graphed in Nitzan and Bichler's GPE Israel - figures 2.3 and 2.4. Sweezy was right to point out that the "tendency of the rate of profit to fall" is a political problem for capitalists and as such can be solved by political means, namely: monopolies and corporatism.

In Britain and the US a limited range of corporatist policies came into effect alongside a limited range of welfare state measures, as the organised left gained some limited political influence, as if these represented the mutual liabilities of some sort of social contract. That there is no such social contract is demonstrated by the fact that welfare measures have been rolled back while corporatist legislation has not. Under the heading of "planning laws" they don't seem so bad, but they have a massive influence of the world we live in and consequently over human conduct. To give an example of their effect they completely curtail free trade by preventing the sale of goods in cities except from shops such as those owned by Hammerson and Great Portland etc, so except with heavy leveraging. I'm not interested in condemning these laws, some of them have positive effects, only in asserting their importance.

Now, supposing the rate of profit falls with each passing decade. Investors have a lower and lower putative return on their capital. Housing can be construed as a type of alternative investment, whether rented or mortgaged, insofar as it generates an income stream and has an asset cost. The income stream from housing depends on the tenants (or "owner's") income and can expand up to the difference between actual income and necessary expenses. As the rate of profit falls the notional rate of profit from housing will fall in line with it. In a free market, as investors opt for those assets with the highest rate of return, asset costs will vary to equalise the rate of profit. Since the income stream for a house is more or less fixed the asset price, i.e. the house price will increase as the rate of profit falls in the wider economy. Since getting a mortgage depends on your income, house prices will eventually move outside the mortgage limits (e.g. lending six times income). This will erode the levels of owner occupancy since fewer and fewer workers will be able to afford a mortgage. Secondarily pressure will be put on the corporatist structure of society (look at its implementation today in Brazil, for instance). All of this will fundamentally change the class structure and political structure of society.

As I said I tend to favour Paul Sweezy's revisionist ideas about the actual rate of "surplus", i.e. profit and quasi profit rising. It is alarming though to look at graphs of falling profits and rising house prices and draw the inference. If the logic of the example above held, the current credit crisis would involve the teething problems of the change in ownership of housing stock from the middle class to capitalists or some kind of corporate/government amalgam. This could be glossed as "capitalism against corporatism" but would inevitably carry through corporatism of a different kind, congruent to the new social bases.

Monday, October 20, 2008

two sorts of profligacy

The remarks of Guardian Economics Editor Larry Elliott, quoted below, were made in the context of efforts by government and media to fob off the public with inadequate, partial explanations of the source of the current economic crisis. These explanations have tended to isolate one aspect of the overall story, taking it to be an explanation sufficient in itself. And this can serve as the basis for a moralising story against wickedness or stupidity. The blame is placed upon, for instance "predatory lenders" or "profligate traders". Larry Elliott does not do this (for that matter neither does Mark K-Punk), but he does make an inventory of spontaneous, popular explanations of the crisis (and like any good economist feels quite justified in taking these from the front pages of the newspapers):

"The changed mood is evident from the media backlash against hedge funds and short-sellers. One headline this week screamed: "Don't let the spivs destroy Britain". It appeared not in the Socialist Worker but in the Daily Express. For Middle Britain, the traders who bragged about their £1,000 bottles of Krug have now become as loathed as the bolshie shop stewards of the 1970s."

This could be working toward one of two things:

1. A sociology of popular explanations of the crisis

2. A sociology of media disinformation about the crisis

It would be relevent to carry out the former task, but this isn't really what Elliott is doing. It is more like he's substituting the latter category for the former. The second task strikes me as the more relevent one. This implies that one ought not to occlude disinformation by taking it to be popular error. One expects disinformation in the press but also some effort to repudiate the most threadbare disinformation. It is more important to isolate deliberate manipulation from popular error because the former is often presented as the latter and because there is some feedback between them. Disinformation could just consist of the skilled arrangement of ideas from popular culture. "May one hundred disinformers blossom!" Chairman Mao might have put it.

After all that, I'm not entirely sure for what reason the "profligate trader" is meant to be beyond the pale. It could be that these traders are meant to be profligate in the way they conduct their business or that they are profligate in the way they spend their money. In the second case this could be a way of suggesting that their income derives from monopolistic super profits rather than normal profits. Hence it could be that the game they're involved in is overly volatile, or it could be that it's rigged.

No one is talking about the rigged game. I don't see much appetite among politicians for breaking up Goldman Sachs or Lloyds TSB. In fact they seem willing to consent to greater consolidation. But it isn't that their way of thinking precludes having a theory of monopoly, (which is just an aspect of petit bourgeois common sense,) rather it is no longer the done thing to talk about monopoly.

To conclude, since the crisis began the political spectacle has more or less weened itself off the neoliberal theory that used to explain everything. There are two sorts of profligate traders you could blame for the crisis, but blaming neither represents an adequate explanation. One of these acts of scapegoating challenges the new orthodoxy, one of them doesn't. Neither is incompatible with the formerly orthodox neoliberal theory.

Thursday, October 16, 2008

"to the witch's castle"

Mark K-Punk is a kind of prophet of dystopian neoliberalism; an anti-Thatcher. In this society everyone inevitably breathed in Thatcherism, ate Thatcherism and drunk in Thatcherism. Seriously, it would be good for a lot of people whose premises really are in line with neoliberalism to follow the yellow brick road of neoliberal theory direct to the witch's castle. In this respect I find Mark K-Punk's work commendable.

Suppose the free market did pertain. Given the normal functioning of the free market the zone of proximal development of the individual will coincide with that of the media, hence:

"What we're seeing is not the collapse of capitalism, but the disintegration of the illusion that capitalism is about the untrammeled free market. The developments over the last few weeks only underscore Alex Williams's point that the State, far from being exterior to capital, is a "vital element of stabilisation" which prevents capitalism from accelerating to the point of self-destruction.

Which isn't to say that nothing is happening. It could well turn out, as Larry Elliott argues, that this is a sea change moment. "For Middle Britain," Elliott claims, "the traders who bragged about their £1,000 bottles of Krug have now become as loathed as the bolshie shop stewards of the 1970s." New political movements require a shared object of loathing, the emergence of which indicates a symbolic shift at the level of the political unconscious. The uneasy dreamwork alliance of neoliberalism and neoconservatism has depended on a shared object of revulsion: the nonproductive outsider, the asylum seeker/ welfare recipient. Could a new settlement emerge organised around the symbolic abjection of the figure of the profligate trader?"

Unfortunately I think the profligate trader is to modern capitalism what the drunken, lecherous Friar was to the Catholic Church in the late middle ages. Anyway, let's look at Larry Elliott's comment:

"For Middle Britain, the traders who bragged about their £1,000 bottles of Krug have now become as loathed as the bolshie shop stewards of the 1970s."

I think people like David Harvey underestimate the extent to which neoliberalism is a genuinely popular phenomenon at least in Britain and the US. Harvey rightly points out the dissonance between neoliberalism as a theory of society and guide for government policy (Samuelson, Friedman and Friedman, Hayek et al) and neoliberalisation: the actual policies pursued that followed a distinct yet coherent logic. Harvey neglects to look at the the way both the theory and practice of neoliberalism are supported by the popular culture of the modern salariat, which could reasonably considered outside the scope of his book*. We've certainly looked at this before: the way the contemporary salaryman or salarywoman has an interest in developing a worldview that's coherent with respect to the prosaic details of work and consumption and hazy with respect to the overall development of society. Baroness Thatcher liked to imagine society as a series of Family Businesses, multiplied or arrayed, laid out in grid form like the pictures on sheet acid. This is the basis for various illusions about the "free market" functioning universally etc.

These are fine things for the Family Grocer to believe in around 1930 but their continuation and their spread today depend on other structural factors. A lot of ready made ideas evidently come through the media. Now, there are two sorts of limiting factors on the content of media discourse: those that relate to the maximisation of profit and those that do not. Broadly speaking there is economic censorship and political censorship.

The popular form of neoliberalism, the heir to traditional petit-bourgeois culture, has always included a theory of monopoly and a revulsion against it. Super profits, market failure and exploitation are associated together as aspects of monopolisation. The academic form of neoliberalism has, over several years, made various attempts to declare monopolies either non existant or benign. Hence, one can see in the way popular culture becomes aligned over the issue of monopolies the relative effects of the two forms of censorship, where they find themselves in contention.

This has become rather convoluted. What I find unconvincing about Larry Elliot's analysis is that what he designates as a new phenomenon is just the old monopoly theory, which hasn't gone away. Which is to say we're still in the suburbs of neoliberalism.

*David Harvey A Brief History of Neoliberalism

Tuesday, October 07, 2008

crisis memo (2)

This is how an economic crisis develops in a rich country:

1. An abundance of cheap imports based on heavily exploited labour leads to a fall in the cost of consumer goods.

2. The economy is in a growth phase and as such wages remain stable.

3. As a consequence of 1. and 2. the costs of housing rise reflecting changes in supply and demand of housing stock given the political situation of the housing market. House prices increase.

4. People invest in housing to profit from increasing house prices. Speculation inevitably takes place multiplying the increase in housing costs (3.). House prices and housing costs are bound together. The spread between them increases on account of speculation. Capital relatively fixed in the form of institutions or "machinary" comes to depend on the second order of income: growth, or even growth of growth e.g. the specialist mortgage banks. Leveraging may accentuate this process but is only a way of purifying an investment based on second order income; it is not constitutive of second order investment. Leveraging is not somehow inimical to functional capitalism. Capitalism essentialy is a system of "leveraging" the productive class. This is how it differs from feudalism. Nor is speculation the result of individual profligacy. Speculation includes quite rational attempts by erstwhile workers to de-leverage themselves.

5. Since gains and losses from the growth in housing costs/house prices depend as much on the time the initial investment was made as income (which correlates to social class) the effect of this growth in housing costs/house prices is to confuse and attenuate the previous class structure.

6. Another effect is to crowd out investment in new productive capital: factories.

7. Eventually wages can no longer support further growth in housing costs. House prices cease to rise.

8. A great deal of the machinary predicated on second order income becomes redundant: useless. This is the source of the deadweight loss in a recession. Failure of productive capital is constitutive of recession.

9. Capitalists then orient their strategy toward a recession phase based on consolidation through fire sale acquisitions and cartelisation. The orientation of the state changes to reflect this.

The workers ought to have fought the increase in housing costs (3.) for the same wretched housing but the attenuation of the class structure (5.) mitigated against this. We know that the banks aren't spiritual entities but consist of capital fixed in institutional form for the purpose of distributing finance capital for profit. Likewise the institutions of the ostensible "left" (unions and political parties, publications and intellectuals circles) consist of more or less fixed "machinary". They struggle to adapt to changed conditions. This situation is in the process of working itself out. Human progess, as before, depends on the amelioration of working conditions in China, Indonesia etc.