Home > The Economy > Sideways, surplus, and structural problems (USA)

Sideways, surplus, and structural problems (USA)

from Peter Radford

The economy sidles along. Sideways has become the constant theme this year and none of the news contradicts the notion that our malaise will linger. In view of the lack of leadership from Washington – the never ending American election cycle militates against actually doing anything other than run for re-election – we cannot expect dramatic policy initiatives of any stripe or color.

The exception being that the House rather pointlessly passed the budget proposal put forward by Paul Ryan, current darling of serious commentators everywhere.

His budget will certainly be defeated in the Senate. Rightly so too since it is an abomination, and, despite the plaudits it draws form the commentariat, is basically an ideologically driven attack on the poor, the middle class, and all else except big business and the super rich. What I love most particularly about the Ryan plan is just how little close scrutiny it gets from the serious folk posing as experts in the media. It is continually being presented as a “bold” attempt to rein in the Federal deficit, yet it is actually a string of traditional Republican policies tied together: it reduces social spending dramatically, it gets rid of Medicare and replaces it with a voucher system that caps payments, it leaves defense spending largely alone, it reduces tax rates, especially for the top tier, and thus creates an enormous hole in the budget. This hole is then closed miraculously by way of a vaguely worded re-vamping of the tax code which is supposed to offset the giveaways with a series of loophole closing and base broadening initiatives none of which is spelled out. The serious folk don’t get into details, so they don’t get vexed about that lack of said detail. They simply take it on faith that Ryan will produce a rabbit from his hat when asked.

This is rubbish of course. The Republicans have never been worried about the deficit. In fact they rather like it. It gives them a hammer with which to attack social spending. It is no coincidence that every single Republican plan produced during their prolonged and painful primary election process would have made the deficit much worse. None was serious. All were ideological in content and aimed at the poor and underprivileged.

This charade in the House is being lauded in serious corners as being a genuine attempt to deal with an iconic issue. Then again serious corners are not serious, so all this fawning is to be expected.

As for the economic news: there really is not much to comment on. The trade gap widened. New claims for unemployment assistance stayed put. The Fed continues to prattle on about a need to hold the line on inflation – even in the total absence of inflationary pressure. GDP potters along at sub-par rates. People continue to leave the workforce which makes the unemployment rate improve for all the wrong reasons. Housing is still stuck in a rut, although not as depressed as it once was. And every other indicator meanders about aimlessly.

Yes, the general direction is correct. No, the pace is nowhere near fast enough.

But.

Yea!! Ring the bells. In April the US government posted a budget surplus. It was in the black to the tune of $59 billion, the first surplus since just before the implosion of Lehmann. This means nothing. The surplus was created by better than expected tax revenues – a sign of a healthier economy – but also cuts in education spending, which don’t augur well if they last. Some quirks in defense spending also helped along the way. Needless to say the White House is pointing to the surplus as evidence of improvement. Which I suppose it is. But it won’t last. Besides, the last thing an economy stuck in sideways motion needs is a bout of austerity. Sucking demand out of the economy is hardly the way to get things rocketing along.

Except if you are a serious person.

Then the only way forward is austerity.

I happen to think that austerians – as opposed to Austrians which sometimes amount to the same thing – are simply frustrated by the evident failure of their three decade long project to re-cast the economy in the image of free market theory.

Which gets me to structural problems.

Our sideways moving economy is so lame that the unemployment rate persists at higher than acceptable levels. People like me argue that this is evidence for more stimulus. We see the issue as a cyclical one. Demand is weak in the private sector as households fix their balance sheets and deal with disgorging the debt they accumulated during the succession of bubbles and other years of Reagan/Bush policy making. I should add that Clinton perpetuated rather than reversed those policies. The blame spreads to both sides of the political divide although it clearly began on one.

The self proclaimed serious people who inhabit the upper echelons of our elite laugh at the obvious, in their eyes, naivety of this cyclical diagnosis. They argue, without a shred of empirical support, that the malaise reflects deep and sinister issues. The structure of our economy is out of whack. We have a bout of structural problems.

Others have debunked the structural problem thesis far better than I. Suffice to say that the structuralist argument is full of wind. It is insubstantial. It is vacuous. It is, like the Ryan budget these same folk adore, a non-starter. But it has legs. It keeps getting trotted out. Usually it is accompanied by a snide and paternalistic reference to us cyclicalists. We are just silly to think that throwing more government money at the problem will save the day. Grown-ups all realize that our problems are deeper than that. They are really deep. Down in its foundations our economy has suddenly been exposed as rotten. Our workers are dumb. They lack the skills needed to compete in this “hyper-connected” globally bounded economy. Our “hyper-efficient” firms can get by with fewer workers, whether dumb or not. So we are faced with a need to provide extra incentives to those hyper-efficient firms to expand their operations and invest even more than they already do. Our education system sucks. It doesn’t produce engineers. Our government regulates way too much and lays a heavy hand on our entrepreneurs. And our banks are being stigmatized such that they will not, or cannot, lend to flood our great economy with the benefits of their financial genius.

In short we are stuck up a river without a paddle.

We have structural problems.

This is a bit like discovering you have some dreaded disease. Serious people all intone in calm and authoritative ways that the medicine will be bitter. It will also take years to show its effects. Along the way we all must try to hang in there, not get despondent, and look to the long term, when the economy will surely blossom. That far off spring will be nourished by an army of clever, hyper-productive, adaptable, and, presumably, low cost workers all of whom will be willing to accept flexible wages, lower benefits, and insecure employment. This re-structured workforce will be the envy of the world. It will allow the platonic vision of permanently low taxes to be coupled with permanently high profits, personal rugged self-reliance will displace flabby reliance on government hand outs, and our economy will soar. Just like it did in the Reagan years. [Insert wistful yearning noises here]

Meanwhile the unemployed should endure. Yes this is a sad and rotten thing. But, hey, re-structuring takes time. And we have no alternative. None at all. No gain without pain is both a cliche and serious economic advice.

The attraction of this ridiculous proposition is that its results are a long way off and it allows structuralists to avoid doing anything in the near term. They can be content that they have tried. They have thought things through. And they have found that nothing can be done – seriously anyway – about our high unemployment rates. Yes it is indeed a rotten and sad thing. But that’s the way of the world.

Hogwash.

The odd thing about structuralists is that they are the very same crowd who got us into this mess. If we have structural problems it is because of their policies. Think about that. They were the advocates for massive deregulation. We were assured that the market magic they so fervently adore would act to eliminate problems. The market will take care of it. With “it” being whatever problem your cared to highlight.

The relentless pursuit of shareholder value would ensure, inevitably ensure, the correct and efficient allocation of our nationals resources. After all shareholders are private folk, and we all know for certain that private folk know exactly what to do with resources. Better than the horribly inefficient government anyway.

Workers will respond to their growing insecurity by throwing themselves into a frenzy of re-education and skill acquisition. The market will ensure, inevitably ensure, our workforce has competitive skills. Its about the incentives. We don’t need government subsidized training. We need to make people responsible for themselves. They’ll get on with it just as soon as the dead hand of government is lifted.

The list goes on.

The structuralists won the debate back in the early 1980′s and went on a binge of structural correction. They recast the economy in image of their free market theory. They deregulated, attacked institutional rigidities [aka unions], stomped over wages, slashed at training programs, and happily structured away through two bubbles and a near historic economic collapse.

In the aftermath of which they announce that our problems are all structural.

A simple, refutation goes this way: an economy out of whack would have hot spots of high activity associated with weak spots where the structural problems were most corrosive. Some industries would be desperate to hire, would be paying high wages to attract labor, and would be booming along. Others would be shrinking, shedding labor, and be rife with bankrupt firms.

None of this do we see.

The weakness is across the board. No industries are hot spots. Employment is rotten throughout. And, curiously, corporate bankruptcies are relatively quiescent. There are no signs of the kind of lopsidedness typical of an economy laden by structural problems.

And the recent record of our deregulated banking system is hardly great testimony to the asset allocating prowess of market magic.

What’s are structuralists to do? With the project wallowing in its own mess, they double down. They cast aspersions at the cyclical argument to divert attention from their own failure and to prevent the public getting a proper and balanced view. They pose as being serious. They disparage alternatives. They discourage debate. They puff themselves up and engage in a self sustaining closed loop of a discussion.

From which no effective policy will emerge because structure is not our major problem. Sure our education system needs buffing up – it has been neglected and underfunded for way too long. Sure we need better training for our workers – it was big business who slashed training programs first in the name of cost cutting. Sure we need to cut the burden of health care costs. Sure …

But the fact remains. We have a demand problem. A cyclical demand problem. Our economy is stuck in a low gear because people are unwilling or unable to spend. Simple. Easy.

But not fixable while the serious people dominate policy making.

Sad. No?

  1. D. P. Lubic
    May 11, 2012 at 10:52 am

    I would argue that we have a structural problem, but I define it differently. What we have done is to outsmart ourselves. Overproduction of cars (we have more vehicles than registered drivers), outsourcing of other jobs, overbuilding the housing market, and other things would kill demand, as noted in most classical economic arguments. But I think we have another problem, one that will be much more stubborn.

    That problem could well be that we are hitting the limits of our technological society, a point of diminishing returns.

    Take cars as an example. Henry Ford’s Model T had only 22 hp, could maybe hit 40 mph, provided there was a road you where you could go that fast (which there normally wasn’t), but even at an average of 20 mph, was much faster than walking and competitive with most trains (local services as opposed to expresses). In 1955 Chevrolet came out with a very new (and now classic) design that had almost nothing in common with its predecessors, and that included a new small-block V8 that, combined with the car’s modest weight, resulted in a bargain-priced rocket that could drive all day on an Interstate highway system that was then being proposed. That V8 was the progenitor of the same fire-breathing monster that powers today’s Corvette, and is in who knows how many SUVs today.

    But here’s the conundrum. A modern car is vastly improved over that 1955 model, arguably even more improved over the 1955 than the 1955 was over the Model T, but it won’t get you anywhere faster; indeed, with traffic being what it is, it’s likely your commute is slower than it was in 1955. Certainly it isn’t as much fun. Driving itself is now a chore for many; who do you know who takes a Sunday drive anymore?

    The same thing applies to your house. Look at a kitchen of today, then imagine one from 1950, another from 1930, and one from 1900 or before. The kitchen in 1900 would have a wood stove, or even a fireplace, open shelves, and if you were lucky, a hand pump for water. Hot water would have to be made with that stove. A kitchen from 1930, at least a relatively new one, would have hot and cold running water, a combined stove and oven that ran on gas, kerosene, or even electricity, and could have a refrigerator (even though the last item would look like a box on legs with a head on it, reminiscent of a sci-fi robot from the 1950s). The 1950s kitchen would have these things in essentially modern form, although the styling would be considered retro today, and would have built-in cabinets for storage. The kitchen of today is essentially the kitchen of 1950 with air conditioning and a microwave–important advances, yes, but not as important or as big a leap as represented from 1900 to 1950, or even from 1900 to 1930.

    This isn’t to say there aren’t improvements, particularly in efficiency, but we’re running out of room for really big changes, and with them, business opportunities. It used to be we had quite a few chances to be, say, a president of an auto company as late as 1950, when Hudson, Studebaker, Checker, and Nash were still around; today, there are only three legacy companies in America, and the odds are just as likely that someone from Europe or Asia will run one. With that corporate consolidation goes opportunities for engineers and stylists, too, not to mention factory workers (who have additional competition form outsourcing and automation).

    What do we do with these people? And what do we do for those with ambition? What are they to do when the best opportunity could be to wait for the manager of the local Dairy Queen to die?

    At least, that’s how I see things. Thoughts?

    • Cristi C
      May 11, 2012 at 2:18 pm

      Rationale might work but I have an issue with the examples. Take Apple where the style did the whole trick and unleashed the apple-mania. It was not a big change, technologically speaking, but still dislocated huge amount of money. So, ignoring styling may be a fallacy.

      This argument does not mean I do not agree with the diminishing of return and its impact in the demand of new products. But I guess it falls into my point expressed earlier: the reduced ROI of a new product for the buyer combined with the debt the buyer already took on in the earlier 80…00 boom years.

  2. Cristi C
    May 11, 2012 at 10:53 am

    Thank you for a very nice article.
    I take it that the message is stimulus.
    But is not this crisis a generational issue? Started in 60-70’s, reaching a peak in household and corporate debt now.
    I seem to remember S&P estimating that in the next few years, corporate bonds mature of about 30 T$. There is no sideline cash to replace it. Corporate cash on hand and short term investments are underwater, being smaller than the debt owned. Freshly printed money could help but so much volume? Several up to tens of trillions?

    Are you proposing compensating debt to make room for further growth within this people generation? Or simply waiting for few tens of years to slowing decrease the debt within old people and wait for demographic to bring fresh individuals forming a new generation and taking on more debt.

  3. davetaylor1
    May 11, 2012 at 1:53 pm

    “Our sideways moving economy is so lame that the unemployment rate persists at higher than acceptable levels. People like me argue that this is evidence for more stimulus. We see the issue as a cyclical one. Demand is weak in the private sector as households fix their balance sheets and deal with disgorging the debt they accumulated during the succession of bubbles and other years of Reagan/Bush policy making. … The self proclaimed serious people who inhabit the upper echelons of our elite laugh at the obvious, in their eyes, naivety of this cyclical diagnosis. They argue, without a shred of empirical support, that the malaise reflects deep and sinister issues. The structure of our economy is out of whack. We have a bout of structural problems. Others have debunked the structural problem thesis far better than I. Suffice to say that the structuralist argument is full of wind. It is
    insubstantial. It is vacuous”.

    Peter, it really doesn’t help to make this argument without understanding what a structure is, and how cyclic variation in demand is evidence for the economic structure being circuital.

    A structure provides a path to guide forces or flows, and the fact that goods and money are moved about in an economic system demonstrates that here we are dealing with flows. The fact that you cannot always see the path in a structure does not mean the idea of it is vacuous. The electrical path from a car battery to its lights goes somewhere undefinable through the car body, but if the lamps are lit it exists. If these lamps go dim when the direction indicators flash that indicates there are two types of circuit and a structural problem: the one type is interfering with the other. So the cyclic variation in ability of people to buy goods they need is not due to their lack of demand but to cyclic variations in confidence in gambling with the same money on the purchase of second-hand stocks and shares. The answer to that, Peter, is not more stimulus (recharging the battery) but insulating (or better still, isolating) the stock market from the real economy.

    Let our governments print enough real money for us to buy what we really want to make, and leave the banks doing our accounting and printing Monopoly money for playing games with in the Stock Exchanges.

  4. Podargus
    May 11, 2012 at 7:23 pm

    What amuses me (cynically) is that so many of the working class vote for the clowns who put forward policies which disadvantage that class.And this after endless months of mindless electioneering.

    Maybe the workers really are “dumb” as in stupid.

  5. davetaylor1
    May 11, 2012 at 10:59 pm

    Lubic @ #1. “With .. corporate consolidation goes opportunities for engineers and stylists, too, not to mention factory workers (who have additional competition form outsourcing and automation). What do we do with these people? And what do we do for those with ambition? What are they to do when the best opportunity could be to wait for the manager of the local Dairy Queen to die? At least, that’s how I see things. Thoughts?”

    Get our ideas straight about what money is, sort the banks out and provide livelihoods in the form of a Citizen’s Income sufficient for us to buy what we produce, and another scenario becomes possible.
    Wages, pensions and finance costs drop out of the equation. What we don’t want to buy we don’t need to produce and sell, and that reduces our indebtedness to Nature, whereas spending profits increases it. Prices therefore reduce to taxes on resource use, and the only justification of corporate consolidation, automation and building anew rather than maintaining the weaalth we already have becomes more economical use of resources. Corporations don’t now need to minimise manpower to reduce costs, they can occupy as many as want to work for them on a time share basis. Our own working hours can be timeshared between cooperative mass production of replacements, modification kits, components and materials, and more personal work in community facilities maintaining what our local communities and farms have already got: modifying or building our own kit, growing our own produce, developing better or more economic engineering etc.

    For those with ambition, credit for development and fixed prizes for actual achievement (rather than open-ended salaries and profits in the promise of them). Such prizes might be anything from a medal to a nicer house. If the manager of the local Dairy Queen is already in the latter, you might have to organise a swap – or wait until s/he dies!

    • D. P. Lubic
      May 13, 2012 at 11:03 pm

      Dave, I like your comment about how we need to get our ideas straight about money. I think a big part of our problems with the economy is that we measure money, but we’re not always sure about what the money is doing.

      Another example from personal experience:

      One of the businesses I had to visit as an auditor–actually, through the accountant’s office–was a (cough, cough) “gentlemen’s club,” also known as a strip club, nudie-cutie club, boob bar, or butt hut. The gross revenue of that club, which is not the biggest or busiest such establishment in my territory, was $1.6 million in 2006. I don’t recall the total payroll at this time, but I do recall that the two owners and the manager got a salary that amounted to $500 per day, 365 days per year, each. EACH!

      The two owners also split an official profit from the club of $40,000.00.

      Now, the (cough, cough) “entertainers” at an establishment like this are often not officially employees. They are considered independent business people, and interestingly, they are not paid by the club itself. Their pay comes directly from the customers. I imagine it being something like some guy coming to the girl and saying (with breathing effects), “(Huff, puff) Sweetie, (huff, huff) can I have a dance, I got a lap and 20 bucks! (puff, huff!)”

      Anyway, the “entertainers” do file their own taxes, almost entirely as proprietresses (Form 1040, Schedule C, “Profit or Loss From Business”); they all go to the same accountant as the club owners. The same accountant told me the girls, combined, grossed another $3 million–almost double the gross of the club itself!

      You and I are in the wrong line of work. I suggested this to my wife, but for some reason she didn’t like the idea.

      I also said I ought to actually visit the place and check out who spends their pay there. She didn’t like that, either.

      Seriously, that total of $4.6 million gets counted in our economy the same as $4.6 million in growing apples (I am in an area with a lot of orchards), or $4.6 million in building cars, or $4.6 million in building furniture or houses, or anything else that’s actually useful. That’s $4.6 million on–what?

      Like I said, I think a lot of economic news is shortsighted. We’re watching the beans running around, but not seeing what they are actually doing.

      I wasn’t the first to make this observation. A fellow named Robert Kennedy took note of this in a speech he made in 1968, when he was running for the Presidency that year. The bulk of the speech was about the conflict in Viet Nam, but in it were a couple of paragraphs of note:

      “Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that – counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

      “Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”–Robert F. Kennedy, University of Kansas, Lawrence, Kansas, March 18, 1968

      A link to a transcription of the speech, for reference:

      http://www.jfklibrary.org/Research/Ready-Reference/RFK-Speeches/Remarks-of-Robert-F-Kennedy-at-the-University-of-Kansas-March-18-1968.aspx

      The Kennedy family has had a history of the men being skirt-chasers, and of having other sins, too. Some would say these remarks were lies, particularly the bit about “the strength of our marriages,” but I’m not so sure. By 1968, Robert Kennedy would have seen two of his brothers die. A lady who was reported to be an “associate” of his brother, Marilyn Monroe, was also dead by this time. Around him, he sees the country being torn apart by the Viet Nam conflict.

      Robert Kennedy would have to have been made of stone not to be affected by this. I think on this day he was speaking the truth as he saw it.

      Robert Kennedy would die a few months later at the hand of an assassin.

  6. Alice
    May 12, 2012 at 5:29 am

    The “structural problem” argument is just good old ugly laissez faire orthodox economics. If the problems are structural “we just cant do anything about them” – so they “do nothing”. After all, its not the elite with good savings who suffer in a downturn and this is one big ugly downturn.
    Same types, spouting the same nonsense they did in the great depression. The decades and the people may change but the laissez faire arguments do not.

  7. robert r locke
    May 12, 2012 at 6:49 am

    Hold on cowboys, Don’t despair there is someone who can save us, Bureaucrats or to use the polite term civil servants. I’m more than half serous. Clemenceau said that war was too important to be left to generals, by extension finance is too important to be left to financiers and economics to be left to economists. So where do you turn = to civil servants who understand that to increase demand we must increase demand — where have these bureaucrats stepped in to provide this sort of guidance — in postwar Japan and in Contemporary China. Economists are in a puzzle and are not activist anyway. Our bureaucrats are subservient to them, financiers, and businessmen. So flee them all and push for handing power to a dynamic technocratic educated group, like those that restored France after WWII. Hollande’s the man.

    • Cristi C
      May 12, 2012 at 7:58 pm

      I feel a contradiction in your rationale. What would be a “dynamic technocratic educated group”? Is not that a group of economists?
      I feel that Clemenceau’s saying was related to the political decision act which must censor or guide the technical decisions of generals or, in our case, of economists.
      If politics feel that discrepancies in the society are bad, socialism will prevail, otherwise a certain degree of right and deregulations.

      • robert r locke
        May 13, 2012 at 7:06 am

        We are use to bureaucrats being either corrupt as a class or subservient to private interests. That is the traditional outlook in the English-speaking world. But beginning in the Enlightment monarchs interested in growing the wealth base of their states reformed the beaucracy as a general class of state servants. This is the class of enlightened civil servants I’m referring to. They are not economists, who if not academics,generally work in the private sector or if they work for the government in Anglo-Saxonia are servants of the private sector. The idea that the civil service can be educated to serve the general interest is not Anglo-Saxon, but it is a tradition on the continent. See my article in RWER, 58, for an example of how university educated economists serve private interests in the US and how grandes-ecoles educated French engineers as civil servants serve the national interest.

      • D. P. Lubic
        May 13, 2012 at 2:11 pm

        “We are use to bureaucrats being either corrupt as a class or subservient to private interests.”–Robert R. Locke

        Sometimes I think that story, in modern times going to Ronald Reagan (who would joke about the “greatest fear” being someone saying, “I’m from the government, and I’m here to help”) is meant to undermine the government and its bureaucrats who, among other things, work to keep business owners honest. I should mention at this point that I am one of those low-level bureaucrats; I’m an auditor with a state unemployment agency. I make sure businessmen report wages correctly. Its pay is too low (under $40,000.00 per year), but it has a good fringe program, and we have some decent holidays.

        I won’t go into too many details at this time because I’m short on time, but I can tell you that about half the people in business have no business in business. This doesn’t mean they are bad people or dumb people–some can be as skilled as surgeons–but they are not good business people. This even applies to some people who try to cheat. I once had a business owner with a listing for “under the table labor” in his journal book, which of course was one of the things I was looking at. Yes, he actually had an entry for an illegal activity, and he let me see it!! Needless to say, he went out of business due to general dumbness. Other people have records in boxes or bags, one employer–a domestic or household account, she was 80 years old and needed a housekeeper, her husband was also 80 and needed a gardener–had their payroll records on little bits of paper about the size of post-it notes, stuck together with straight pins; it was dangerous to pick it up! :-)

        I normally don’t deal with the income side of business–I’m interested in what is spent, and confirming whether it’s for wages, reimbursements, subcontractors, and other expenses, and making sure wages aren’t hidden in some of that–but on one audit, an accountant told me that he owner of a nursery–a greenhouse–kept his income records–the tapes out of his cash register and copies of receipts he gave to customers–in a box in a shed next to his greenhouse. That shed had a hole in it that let in a nice, cute, soft, furry kitty cat. Guess what that !!@#$%&!!!! cat used for a litter box?

        The accountant said he was going to estimate the income.

        That was only one of the problems that particular client had, who hadn’t filed anything with anybody, hadn’t paid his entrusted funds (employee withholding for income tax, Social Security, and Medicare, which wasn’t his money, it was his employees’ money), who lacked good payroll records, and had other difficulties; he hired the accountant out of fear of God and the I.R.S., who got mad at him, and justifiably so.

        I plan to have more later. Some of it I wouldn’t have believed if I hadn’t seen it, but take my word for it, all I can tell you about is true. I’m not good enough to make some of this up!

  8. Alice
    May 12, 2012 at 9:37 am

    I totally agree robert – war is too important to be left to generals and economics is too important to be left to economists. You are so right about the power of civil servants (the humble obscure below the radar power of civil servants to stuff up policies they dont believe in) which is why the Greenspan/Rand/far right / elite attack on those very civil servants by way of

    “we need to shrink the government!”

    They want to shrink their enemy more like.

    The civil service – the last bastion who disagrees with them and may have a moral / ethical stand, that are not so obvious bribe targets (unlike this minister or that minister who is working to keep their political amibitions and their party in power).

    Civil servants are the enemy of bad policy. Thats why the “shrink the government” rant.

  9. foldvary
    May 12, 2012 at 3:04 pm

    Austrian-school economists do not advocate austerity. They advocate removing the deadweight loss drags imposed by government, which would allow the economy to grow faster than China.

    • D. P. Lubic
      May 12, 2012 at 4:35 pm

      I don’t know about that. It seems we’ve tried that here, and what it looks like we wound up with crooks running the show. I guess it makes sense; crooks would consider “cops” and “regulations” or “laws” to be a “deadweight loss” for them.

      http://en.wikipedia.org/wiki/William_K._Black

      http://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html

      I believe this also ties in with my original post about how our whole society could be hitting limits in terms of benefits from technology, and also resource limits (i.e., “peak oil”). One of the things I think may have been happening on Wall Street and in other similar places is that these people are seeing the effects of these limits. They are seeing the limits of growth, and that perpetual “growth” isn’t possible.

      Look at it this way: it used to be relatively easy to invent things, like telephones. The technology, while somewhat primitive, was still better than anything else at the time. It was also simple enough that tinkerers could cobble up prototypes in a bedroom, a tool shed, or a garage. That’s where a lot of such inventions came from; that’s where Henry Ford built his first car, that quadracycle. And yes, Bill Gates could work on a computer program in a garage, too, with a primitive but still sturdy early computer. Compare that to today, where you have to sell the concept to a factory and laboratory to develop and engineer a new “smart phone,” or something similar. How many people can work this up in a garage today? At that, how much in the way of technological improvement is really dramatic anymore? Doubling the speed of a processor to cut times from X-nanoseconds isn’t visible to the person punching keys on a computer or calculator as they balance their checkbook.

      A lot of those opportunities–autos, electronic communications, powered farm equipment, aircraft, and so on–weren’t just “once in a lifetime” chances to get rich; they were “once in forever.” And the next steps are expensive and hard–think commercial space flight–and in that example, maybe of questionable benefit. It’s so, so much easier to just come up with some big fraud, a huge variation of embezzlement.

      Extreme money is power, and such power does corrupt. . .

      • foldvary
        May 12, 2012 at 8:52 pm

        No, “we” have not tried economic freedom, as the USA has never had a free market. From the beginning, US policy consisted of stealing land value and stealing wages. If you understand that the purpose of the US government is to subsidize the big landowners and their financial and political allies, you will understand that “free market” has been a propaganda tool for boobus americanus, including “progressives” who believe that subsidies to real estate are “free market.”

    • Alice
      May 13, 2012 at 8:06 am

      Fred

      Re comment above – its not the government which is dragging the US economy down. Its that all their “freed up entrepreneurs” have moved offshore and are happily exploiting cheap labour and tax free zones far from home.

      Come on now. The deadweight loss government argument here is a drop in a bucket of losses for the US economy and no shaving government further is going to bring back power to the US.

      You need to get real on why the drag in the US economy.

  10. Alice
    May 12, 2012 at 10:42 pm

    I think what the US means within the “free market” rhetoric pushed by its corporation owned media is the freedom of US corporations to go where they want when they want, take what they want how they want. If you think that means a free market for the ordinary working US or foreign working class or middle class citizen, you are making a massive fallacy of composition.

  11. May 12, 2012 at 10:43 pm

    D. P. Lubic :
    I would argue that we have a structural problem, but I define it differently. What we have done is to outsmart ourselves. Overproduction of cars (we have more vehicles than
    registered drivers), outsourcing of other jobs, overbuilding the housing market, and other things would kill demand, as noted in most classical economic arguments. But I think we have another problem, one that will be much more stubborn.
    That problem could well be that we are hitting the limits of our technological society, a point of diminishing returns.
    Take cars as an example. Henry Ford’s Model T had only 22 hp, could maybe hit 40 mph, provided there was a road you where you could go that fast (which there normally wasn’t), but even at an average of 20 mph, was much faster than walking and competitive with most trains (local services as opposed to expresses). In 1955 Chevrolet came out with a very new (and now classic) design that had almost nothing in common with its predecessors, and that included a new small-block V8 that, combined with the car’s modest weight, resulted in a bargain-priced rocket that could drive all day on an Interstate highway system that was then being proposed. That V8 was the progenitor of the same fire-breathing monster that powers today’s Corvette, and is in who knows how many SUVs today.
    But here’s the conundrum. A modern car is vastly improved over that 1955 model, arguably even more improved over the 1955 than the 1955 was over the Model T, but it won’t get you anywhere faster; indeed, with traffic being what it is, it’s likely your commute is slower than it was in 1955. Certainly it isn’t as much fun. Driving itself is now a chore for many; who do you know who takes a Sunday drive anymore?
    The same thing applies to your house. Look at a kitchen of today, then imagine one from 1950, another from 1930, and one from 1900 or before. The kitchen in 1900 would have a wood stove, or even a fireplace, open shelves, and if you were lucky, a hand pump for water. Hot water would have to be made with that stove. A kitchen from 1930, at least a relatively new one, would have hot and cold running water, a combined stove and oven that ran on gas, kerosene, or even electricity, and could have a refrigerator (even though the last item would look like a box on legs with a head on it, reminiscent of a sci-fi robot from the 1950s). The 1950s kitchen would have these things in essentially modern form, although the styling would be considered retro today, and would have built-in cabinets for storage. The kitchen of today is essentially the kitchen of 1950 with air conditioning and a microwave–important advances, yes, but not as important or as big a leap as represented from 1900 to 1950, or even from 1900 to 1930.
    This isn’t to say there aren’t improvements, particularly in efficiency, but we’re running out of room for really big changes, and with them, business opportunities. It used to be we had quite a few chances to be, say, a president of an auto company as late as 1950, when Hudson, Studebaker, Checker, and Nash were still around; today, there are only three legacy companies in America, and the odds are just as likely that someone from Europe or Asia will run one. With that corporate consolidation goes opportunities for engineers and stylists, too, not to mention factory workers (who have additional competition form outsourcing and automation).
    What do we do with these people? And what do we do for those with ambition? What are they to do when the best opportunity could be to wait for the manager of the local Dairy Queen to die?
    At least, that’s how I see things. Thoughts?

    The only reason that is a problem is that the rich can’t show they are rich so easily. They aim to change that. At least so I believe.

    As far as I can see we can produce good qualty goods and we can make enough of them for everyone. If we distribute more equally then the rich don’t really get anything everyone else doesn’t have: they can get more expensive soap, but they are not the only ones with soap: and everything else is much the same. They dont seem to be prepared to tolerate that.

    I cannot see why we can’t all have good standard of living while working fewer hours: that is the point of better productivity surely? Instead we make most people work ridiculous hours and they are time poor: and we do not give the rest any work and they are money poor. The latter group is growing and all that does is reinstate the real difference which you note has much reduced over time.

    The direction of travel makes no sense to me

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