This time, Krugman is right. Lowering nominal wages is really, really hard (charts).
from Merijn Knibbe
According to Paul Krugman, in a recent blogpost,
It is really, really hard to cut nominal wages, which is why reliance on “internal devaluation” is a recipe for stagnation and disaster.The crisis really has settled some major issues in economics. Unfortunately, too many people — including many economists — won’t accept the answers
The title of Krugman’s post is ‘Lessons from Europe’. That’s wrong. The title should have been ‘Lessons from Ireland’, as Krugman bases his statement on Irish data only: even very high unemployment combined with policies aimed at lowering nominal wages did not lead to lower nominal wages in manufacturing, in Ireland. The Irish data can however be supplemented with data from comparable countries (high unemployment, policies aimed at lowering wages) like Latvia, Lithuania, Estonia, Greece, Denmark and Spain (for comparison, Germany is added, too). And this shows the same lesson. Surprising, as especially the Baltics are supposed to have very, very ‘flexible’ labor markets. So, Krugman is right. Lowering nominal wages is really ‘really, really hard’. It’s not entirely impossible. Lithuania did manage to decrease wages. But even this success however seems to have been short lived.
Note: the transition countries managed to increase labor productivity with about 10% a year in the 2000-2007 period. The potential for further increases is far from exhausted. Policies aimed at restoring labor productivity growth seem to have a better chance than policies aimed at lower nominal wages.
(all data: Eurostat, average hourly total wage costs in manufacturing. I didn’t include Ireland as Eurostat does not have the Irish data which Krugman shows. Germany, Spain, Ireland, Denmark: 4-quarter moving averages. 2004, 2007 and 2009 were election years in Greece)
This really is sad. If the people that do the work would work for nothing, eat less and die before they become a burden on society, there would be more left for the non -productive financial economy to consume.
As Bertolt Brecht put it so eloquently: “In the contradiction lies the hope.” And also:
Those who take the meat from the table,
teach contentment.
Those for whom the taxes are destined,
demand sacrifice.
Those who eat their fill, speak to the hungry,
of wonderful times to come.
Those who lead the country into the abyss,
call ruling too difficult,
for ordinary folk.
The “teleological logic” of capitalism and imperialism that shapes the trajectories, vicissitudes and recurring “waves” and “gales” of “creative destruction”, destructive destruction, geo-spatial agglomeration and environmental crises, shifting SSAs, etc flows from the core imperatives (that give rise to derivative imperatives) ultimately, as the slogan of the Medici Dynasty put it: “Money to acquire power; power to protect [and further accumulate] money.
The 1) imperative to produce maximum possible surplus value under given conditions flows from its role as a necessary but not sufficient condition for the 2) imperative of effective competition (market shares, revenues, profits, name recognition etc) which is a necessary but not sufficient condition for the 3) imperative of actual realization (accounts receivable cleared etc) of maximum possible surplus value ( divided partly through forms and levels of intra-capitalist competiton as well as capitalists against the public) which is a necessary but not sufficient condition for the 4) imperative of accumulation of capital (with the understanding that “capital” is just not some aggregated–(spuriously and with serious methodological issues—”stock” of “thing-commodities” that have been produced to produce other “thing-commodities” (“production of commodities by means of commodities) but that “capital” represents an ongoing process, behind and emodied in which, are socio-cultural, political-legal, economic and historico-geographic power and other relations that are necessary but not sufficient conditions for the expanded reproduction and sought hegemony of capital and capitalism/imperialism.); and the 4) imperative accumulation of capital is a necessary but not sufficient condition for the imperative for capitalist forms and levels of “efficiency” or the “production”, but not yet realization, of maximum possible surplus value, which is a necessary but not suffient condition for the 1) imperative of effective competition…
Of course these interrelated imperatives reflect and create derivative contradictions and imperatives. The imperative to produce at lowest possible private costs, to depress real wages and increase productivity, creates not only other imperatives like union busting, exploitation of local and foreign cheap labor-power, environmental decay even if able to socialize the costs and risks of clean-up, etc but also creates contradictions between the production and realization of surplus value (thus the imperative for pushing large volumes of debt to sustain present demand from future liabilities and income. There is another core contradiction between production/realization of surplus value and sufficient and sufficiently profitable opportunities and outlets for surplus absorption or re-”investment” consistent with survivals of individual capitals or the whole system itself.
As Heraclitus noted” “Man’s[sic] character is his fate. And so it is with whole systems as their inner and defining core features, relations, structures and contradictions shape the core imperatives and contradictions of the system at micro and macro levels, that shapeand change the contexts within which these occur that shape the trajectories, crises, shifts, vicissitudes and ultimately fate of the system itself.
As long as humans exist on this planet there will never be “The End of History” as history is not destiny and the masses of people, not geniuses, demagogues, technology, academics, house radicals, even wars, etc, that are the makers of the course of history and changes of systems, or even some of the particular events, over the course of it.
Part of the fundamental problem that makes capitalism prone to crises is that economists call it a “success” when wages in a country are lowered.
“Free trade” and free capital movement lead us to regulatory competition which is a rat race towards an uneven, unjust and dysfunctional society.
We don’t need lower wages. We need higher wages and redistribution.
I assume I share this sentiment with this blog post’s author, I just would like to clarify that wage reduction is not something desirable. Beggar-thy-neighbour policy is so 1920s!
Even in spite of the missing close quotes and close parentheses, this is a keeper.
Dear Friends & Allies,
I submit that the essence and source of The Problem this blogsite is focused on is the lack of a holistic, fundamental theory and definition of economics that includes the full spectrum of causes, principles, governing dynamics, contributing factors and circumstances. The core issues involve the essential principles of psychology, ethics, philosophy, ontology, history, geopolitics, forensics, religion and spirituality.
With an unassailable, holistic, truly fundamental theory that reveals all the basics and governing dynanmics of economics, there will be no possibility of the absurd nonsense that passes for serious discussion of the effects of Plutonomy and Casino Capitalism
To further explore this proposal, I suggest viewing “The Secrets of Oz” at Youtube, then studying the texts at The Greenbook blogazine:
>> http://mm-greenbook.blogspot.com
I look forward to your critiques & comments.
BTW, thanks to Paul and sad concurrence with his observation with the chronic denial afflicting victims and accomplices alike. Thanks also to all who strive for a solution.