Home > Uncategorized > Why is slow growth a problem? (4 graphs)

Why is slow growth a problem? (4 graphs)

David Ruccio

growth

There is no doubt that, eight years after the crash of 2008, the world economy continues to stagnate. The problem of slow growth is confirmed by Joseph Stiglitz [ht: ja], who bases his argument on the latest report from the United Nations, World Economic Situation and Prospects 2016 (pdf).  Thus, for example, the growth rate of developed economies, which averaged only 0.8 percent over the 2007-2014 period, was projected for 2015 to be 24 percent less than before the crash (and forecast to still be less than in 2007 for at least the next two years). For other groups of countries, the decline is even worse: 54 percent for developing countries and 132 percent for economies in transition.

A few days ago, I argued that slow growth was a fundamental problem for capitalism. The question is, why?

To be clear, there’s a reasonable argument to be made that we would all be better off with less or no growth. That’s certainly true for our natural environment, in terms of issues such as global warming, pollution, and so on. Fewer resources would be extracted; less energy would be needed, thus lowering the level of greenhouse gasses; and, in general, less environmental damage might be caused by our economic activities.

My argument, however, is about the predominant economic system in the world today. It is capitalism that has a slow-growth problem. And that’s because growth is both a premise and promise of a particularly capitalism way of organizing our economic activities.

It is a premise in the sense that capitalists—the capitalist class as a whole, not individual capitalists—can collect and utilize for their own purposes more surplus-value when capitalism is growing—when productivity is high, when more commodities are being produced, when the economy as a whole is growing. There’s more surplus available, even if workers’ wages are rising, and individual capitalists can all get their aliquot share of that growing surplus.

Of course, capitalists can get more surplus even when the economy is not growing, or growing only slowly. But that requires additional measures, such as keeping wages low. If, for whatever reason, they’re able to keep workers’ wages from growing, then the difference between the value those workers produce and what they receive in income can still grow.

employment gap

And, as it turns out, capitalism has a way of keeping workers’ wages from rising: unemployment. According to the United Nations, just in the OECD countries, 44 million workers were unemployed in 2015, about 12 million more than in 2007. And one third of unemployed individuals were out of work for 12 months or more in the last quarter of 2014—a 77.2 percent increase in the number of long-term unemployed since the financial crisis hit.

One of the key premises of capitalism is that it provide sufficient jobs to employ everyone who wants to (and, of course, needs to) work. Clearly it hasn’t been able to do that in the years since the crash—and slow growth in the foreseeable future will maintain or even increase the existing “employment gap.”

real-wages-chart-q4-2015

source

But, of course, the existence of a large number of unemployed workers has had the desired effect: real wages declined from 2008 onward and, even as they began to increase in 2015, they’re still far below what they were before the crash.

And while the decline in real wages certainly serve to increase profitability in the short run, it has also undermined the ability of workers to buy back the commodities they produce. That undercut the consumption contribution to growth. In turn, capitalists ahve been hesitant to continue to invest, which is lowering the investment component of growth.

That means we can expect little economic growth now and in the years to come. And, as I have shown, slow growth undermines both the premise and promise of capitalism.

  1. graccibros
    February 10, 2016 at 11:06 pm

    That was David Harvey’s premise in his widely praised book – even by “The Financial Times,” “The Enigma of Capital.” The GDP growth rate per annum less than which capitalism would falter under was 3%. Others have objected, noting that many businesses were very profitable through the worst of the crisis, didn’t know where to invest, turned to financial circling with their own stock buy-backs…others now argue that we are seeing the first substantial signs of real political revolt, economy driven…in Greece, the British left…Bernie Sanders?

    I read the cumulative global signs – the large number of major economies with slowing growth and meeting outright the technical definitions of recession – is worrisome, as is the financial strain to the betting parlors due to commodity price falls…and the bottom of the exhausted tool kits of the Central Banks…could the system withstand a financial panic from an unforeseen source under these circumstances? I thought I saw that developing in August with a major firm – Glencore – bearing the worries as the “trigger…” pulled out if its spiral though…

    Here we are, February of 2016, doesn’t look much better to me than August.

  2. John Hermann
    February 11, 2016 at 12:27 am

    The gap is not going to get better, it will only get worse. As the current system is not working, we need a radical change to the way in which the economy operates. That is to say, we need to change the rules by which capitalism operates, or otherwise get rid of capitalism as a whole. One way in which the system can be changed is to implement a national dividend for all citizens, along with a special supplement for the long-term unemployed. This could easily be implemented in the form of fortnightly deposits in the bank accounts of all adult citizens, made by the central bank and supported by appropriate federal legislation. There is no doubt in my mind about the viability of the financial mechanics for this option.

  3. February 11, 2016 at 4:06 am

    John, I completely agree. There is one important pre-condition you failed to mention though. That dividend – the share of society’s wealth in the aggregate productivity over millennia that is really owned by all and thus payable to all by apportionment – must be issued debt-free. There is a shortage of money. Indeed, money is the only thing there is a shortage of. Consider ANYTHING you think there is a shortage of and when you think about it “if there was just more money” it could easily be addressed; alternative energy, pollution, food, housing, infrastructure. Money is made by man – a figment of our imaginations. It is easy to make more. Indeed the Constitution of the United States built it in as Article 1, section 8. Canada can do it with the Bank of Canada Act. All that is needed is a broad understanding of this basic fact.

  4. February 11, 2016 at 4:09 am

    Psst ! Don’t tell. The junk car dealer price has fallen to negative. U pay them. This is new territory. Below 2008/9. I’m glad I don’t own a cargo container of scrap on a six week route to China.

  5. February 11, 2016 at 4:56 am

    John, the financial mechanics of your proposal may be sound. But politically it wouldn’t receive a majority of votes from any party in Congress. In fact, I don’t think the bill would ever make it to the floor to be voted on. But it’s a proposal I can support. Maybe that’s why I’ve never been elected to public office.

  6. John Hermann
    February 11, 2016 at 5:43 am

    Unless something as radical as this is implemented, I cannot see much hope for the future. The current trajectory can only end in revolution and/or military dictatorship.

  7. February 11, 2016 at 3:59 pm

    Have data, lack theory
    Comment on David Ruccio on ‘Why is slow growth a problem?’

    Everybody knows: the economy does not function as economics textbooks say. This holds — with damaging consequences — in particular for the labor market. The fatal professional incompetence consists in:

    • Until this day, the representative economist has not realized that the overall systemic interdependencies establish a POSITIVE feedback loop between the (aggregate) product and the (aggregate) labor market.

    • Until this day, the representative economist cannot tell the difference between income and profit.

    In the following a sketch of the formally and empirically correct employment and profit theory is given.

    The most elementary version of the correct employment equation reads:

    From this equation follows inter alia:

    (i) An increase of the expenditure ratio rhoE leads to higher employment. An expenditure ratio rhoE>1 indicates credit expansion, a ratio rhoE<1 indicates credit contraction/debt repayment.

    (ii) Increasing investment expenditures I exert a positive influence on employment, a slowdown of growth does the opposite.

    (iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment. This implies that a HIGHER average wage rate W leads to HIGHER employment. This is, of course, contrary to conventional economic wisdom (2015).

    (iv) The complete and testable employment equation is a bit longer and contains in addition profit distribution, public deficit spending, and the trade balance with the rest of the world.

    Point (i) and (ii) is familiar Keynesian stuff. Let us focus here alone on the factor cost ratio rhoF as defined in (iii). This variable embodies the price mechanism which, however, does not work as the representative economist hallucinates. As a matter of fact, overall employment increases if the average wage rate W increases relative to average price P and productivity R.

    In order to avoid worldwide unemployment and deflation the average wage rate must therefore rise worldwide. For the relationship between real wage, productivity, profit and real shares see (2015, Sec. 10)

    The correct profit equation reads: Qm = Yd+I-Sm (2014, p. 8, eq. (18))*
    Legend: Qm: monetary profit, Yd distributed profit, Sm: monetary saving, I investment expenditure

    The profit equation gets a bit more complex when foreign trade and government is included. The equation says (for the world economy as a whole):

    (v) Strong growth = high investment I is good for the overall monetary profit of the business sector as a whole.

    (vi) Strong consumption expenditures = low saving Sm or even dissaving -Sm = growing consumer debt is good for profit.

    (vii) By implication high government deficit spending = growing public debt is good for profit.

    (viii) High profit distribution Yd is good for profit.

    Profit and profit distribution constitute a self-reinforcing feedback loop. The same holds for profit and investment. These built-in positive feedback loops explode the notion of equilibrium: the monetary economy is NOT a self-optimizing equilibrium system.

    Note, that overall profit has nothing to do with productivity or low wages. These and other factors affect only the distribution of overall profit between firms or countries. Note also, that the profit equation holds for the USA, Russia, China, the EU and all other countries/associations, that is, it does not matter at all whether one has a market economy or private property or free enterprise or any other of the alleged characteristics of capitalism.

    David Ruccio has to do a lot of scientific homework in order to make his data speak.

    Egmont Kakarot-Handtke

    References
    Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792
    Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350

    * https://commons.wikimedia.org/wiki/File:AXEC09.png or https://commons.
    wikimedia.org/wiki/File:AXEC08.png or https://commons.wikimedia.org/wiki/File:
    AXEC42.png

    • February 12, 2016 at 12:14 am

      This equation is useless without defining the variables. That said, the problem is dead-simple. Costs are generated faster than wages in the production of EVERYTHING. Therefore it stands that it is IMPOSSIBLE to meet prices with the wages paid to produce those goods and services. This creates a gap which Keynes acknowledged and CH Douglas went to great lengths to examine every aspect of this and to propose a viable solution that has minimum impact on the present order of things. This is a cost-accounting problem. Period. End of story. Any attempt to make it more complicated than that is intellectual masturbation IMO. See http://www.economiccures.com for my proposed solution.

    • February 12, 2016 at 11:44 am

      Accounting for dummies
      Comment on Liam of Feb 12 on ‘Why is slow growth a problem?’

      You say “This is a cost-accounting problem. Period. End of story. Any attempt to make it more complicated than that is intellectual masturbation IMO.”

      Agreed, let us treat it as an accounting problem. And let us de-complicate the economy to the bare bones.*

      The most elementary economy is the pure consumption economy and it consists of the business and the household sector. For a start, the business sector produces and sells one consumption good. The business sector is fully integrated from the intake of raw material to the output of the final product. With one giant firm we have the simplest of all possible cases.

      First period: the business sector pays 100 monetary units (million, billion, trillion Euro, Dollar, Yuan) to the household sector and the household sector spends exactly this amount on the consumption good. There is no saving of the household sector. The business sector’s profit is zero and the price of the consumption good is equal to unit wage costs. The real wage is equal to productivity.

      For the economy as a whole there is no gap. The business sector fully recovers its wage costs. This can happen at ANY level of employment, so full employment is no problem at all. However, problems can arise on the monetary side. If employment is doubled, for instance, then wage income doubles and this means that transaction money must double. In a well-designed economy the central bank can provide the necessary transaction balances out of nothing.

      Interim result: it is possible in principle to run the pure consumption economy at any level of employment and to grow or shrink at will provided the central bank finances the wage bill whatever it is. The business sector makes neither profit nor loss. The economy is reproducible for an indefinite number of periods.

      Second period: the household sector saves 10 monetary units (S=10) and spends 90 units. Now, the business sector makes a loss (Q=-10). The market clearing price is lower than unit wage costs. There is no change of inventory.

      Accounting result: saving=loss or S+Q=0. The complementary notion to saving is NOT investment but loss. If the household sector dissaves 10 monetary units (S=-10), i.e. spends 110, then the business sector makes a profit (Q=10). So growing household sector debt is the ULTIMATE source of profit (NOT productivity increases, NOT risk taking, NOT wage cutting, NOT firing people, NOT the other brain-dead common sense explanations from the microeconomic ant-perspective).

      At the central bank’s balance sheet we have in the case of pure credit money at the end of the 2nd period 10 units of current deposits of the household sector and the equal amount of current overdrafts of the business sector in the case of saving. Without going further into details it should be obvious that the rate of interest on the asset side and the rate of interest on the liability side must be such that their difference covers the wage costs of the central bank under the condition of zero profit. Again, there is no gap or any problem IF the economy is well-designed. Needless to emphasize that it is actually NOT well-designed.

      How to organize a well-functioning economy is a question neither orthodox nor heterodox economists have figured out in more than 200 years. No question, if there is something like a scientific hell Walrasians, Keynesians, Marxians, and Austrians will be dammed to discuss their garbage in eternity with dull econ101 students as sole audience.

      Take-away: you have to thoroughly rework your website. Flag-waving is not a substitute for thinking or proper accounting.

      Egmont Kakarot-Handtke

      * For the formal underpinning see the post ‘Economists cannot do the simple math of profit — better keep them out of politics’
      http://axecorg.blogspot.de/2016/01/economists-cannot-do-simple-math-of.html
      or the SSRN working paper ‘Economics for Economists’
      http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2517242

      • February 12, 2016 at 8:34 pm

        EKH, I won’t agree to your FIRST model because it is so far from reality that it is hardly worth commenting on. Is the ONE produced good food? It must be something that EVERYONE needs and without it we all die. If so, does every family work for the ONE company or industry? If yes, are there no machines to mitigate the need to work; that is not a reasonable assertion. You don’t need the entire workforce to feed itself in the 21st century. If no, do we just let the unemployed masses starve?

        Furthermore, do you really expect a business to operate on no profit? Profit itself is a cause of the gap – whether service charges, markup or interest. I completely disagree with your first interim result. The math doesn’t work because your model is flawed a-priori for not reflecting reality. You might as well presume that we breathe water or the sky is green. It doesn’t model reality in any reasonable fashion.

        On your second point, if the public only consumes 90% of production, the business goes broke because goods are stranded. The seller’s only option is to raise prices for the next wave of production to cover the loss. This is in fact what also happens when purchasing power is diverted to capital. We call this cost-push inflation. That is why we must look at cost accounting in the context of a flow. Time is a factor that must be dealt with. S+Q may be zero but it matters not to the businesses who must sell before the creditors close in or die by bankruptcy. That said, I agree with your bottom line observation that “So growing household sector debt is the ULTIMATE source of profit.” In fact, profit is derived from ALL debt – public, corporate and private. The causes of the gap were identified by CH Douglas a century ago and there are 4. We just identified two – purchasing power diverted to capital and profits. The other two are depreciation and equities investments.

        I agree about the bad design but I don’t agree that no better method has been devised. Social Credit is the better method and it has been around for almost a century – but never tried. I think it is you who has bad accounting. We could go into a pissing contest about this for weeks but I have an alternate proposal. I don’t intend to teach you the ins and outs of social credit in this thread but I know for an absolute certainty that I am right. Let’s reduce the problem to an irrefutable proposition. If you can’t defeat it with logic and reason, I challenge you to dig deeper into social credit because it does solve the problem. Here it is…

        Tell me a single business on earth that offers either goods or services that is entirely comprised entirely of just A or just B where:

        A = all cost components of price comprised of wages, earnings or dividends
        B = all cost components of price comprised of everything else that is NOT wages, earnings or dividends (i.e. depreciation, raw materials, infrastructure, capital equipment, etc.)
        PRICE = A + B

        Are we in agreement so far?

        I can say for an absolute certainty that there is NOTHING ON EARTH comprised of only 1 or the other. The math is PRICE = A + B. Since it is PRICE that a business must successfully and consistently liquidate to stay in business and it is PRICE that consumers must be able to meet to buy those business goods or services, it stands to reason that A must be able to meet PRICE. The only way that is possible is if B = 0 and that is impossible.

        Even John Maynard Keynes admitted that there is a gap. He described it thus in 1936 in his book, The General Theory of Employment, Interest and Money :

        Consumption is satisfied partly by objects produced currently, and partly by objects produced previously, i.e., by disinvestment. To the extent that consumption is satisfied by the latter there is a contraction of current demand, since to that extent a part of current expenditures fails to find its way back as a part of net income. Contrariwise, whenever an article is produced within the period with a view to satisfying consumption subsequently, an expansion of current demand is set up. Now all capital investment is destined to result, sooner or later, in capital disinvestment. Thus the problem of providing that new capital investment shall always outrun capital disinvestment sufficiently to fill the gap between net income and consumption, presents a problem which is increasingly difficult as capital increases. New capital investment can only take place in excess of current capital disinvestment if future expenditure on consumption is expected to increase. Each time we secure today’s equilibrium by increased investment we are aggravating the difficulty of securing equilibrium tomorrow.

        When he was later asked what the ultimate result of this disequilibrium would be, he stated that economic disaster is inevitable. We are on the threshold of that disaster right now. The reason is that the gap has aggregated into such a colossal amount that consumers, business and government have reached the point of debt exhaustion. Somewhere between where we are now and “I need to spend 100% of my money to service my debt” is economic collapse.

        This is so easy to fix that it staggers my mind how few people can see the real problem and its obvious solution. It’s a shortage of money stupid! Not you but almost everyone in general.

    • February 13, 2016 at 10:25 am

      Lost in schizo
      Comment on Liam of Feb 12 on ‘Why is slow growth a problem?’

      First you say “This is a cost-accounting problem. Period. End of story. Any attempt to make it more complicated than that is intellectual masturbation IMO.”

      Next you say “I won’t agree to your FIRST model because it is so far from reality that it is hardly worth commenting on.”

      So, you first ask for a simple picture of the economy and when you get the simplest possible picture you complain that a lot of details are missing. This is the outworn catch-22 schizo that is endemic in economic discussion (2013).

      If you had done your homework and looked into some of my working papers you would have realized that the elementary consumption economy has already been differentiated in ALL directions. So, (i) your ‘realism vs. abstraction’ kindergarten game falls flat, and (ii), you make it quite clear that you are not aware of the basics of methodology: “There can be no doubt whatsoever that a problem which has not yet been solved in all its aspects under its simplest conditions will be still more difficult to tackle if other, ‘more realistic’ assumptions are being made.” (Morgenstern, 1941, p. 373)

      With regard to your challenge the error/mistake is already in the first line. You write “A = all cost components of price comprised of wages, earnings or dividends.” Note that dividends are no cost component. Better you get your price theory right first (2011).

      Advocating social credit is one thing, and claiming that it is based on sound economic theory is quite another thing — in your case it is definitely not.

      You make the same mistake as standard economics, that is, to start with an agent/firm and to go bottom-up, i.e. microfoundation, leads to nowhere, yet to start with the economy as a whole and then to go top-down, i.e. macrofoundation, yields consistent and testable propositions. Every economist could know this by now from the evident failure of Walrasianism.

      Egmont Kakarot-Handtke

      References
      Kakarot-Handtke, E. (2011). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–22. URL
      http://ssrn.com/abstract=1973952
      Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL http://ssrn.com/abstract=2207598.
      Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political
      Economy, 49(3): 361–393. URL http://www.jstor.org/stable/1824735

      • February 13, 2016 at 7:59 pm

        ekg–i personally have looked at over 10 of your working papers. not a single one is more than a bunch of accounting identities with non-formal notation. and they are all the same—typical academia–write one paper and publish it 20 times. definately not peer reviewed by an economist whether orthodox or heterodox. just a bunch of pseudo-equations backed up by alot of historical quotations by people who would and still do call you a crank. You start from the wrong place and go to another one. that is even worse than classical, neoclassical or econophysics. ‘rho’. oh—and i bet you dont like starting with micro—but thats because it starts with u. u have to start with richard goodwin. u can’t even write an abstract apart from saying i know everything and noone else knows nothing. einstein could write an abstract in one paragragh . samuelson too, u write 2 much and say nothing at all. none of EKH paragraphs dont mean anything. maybe just join isis, collect your trust fund or retire to greece—i used to have a job on crete untill i got bEAT UP TOO BAD so i went to egypt—and then decided to make it to india and ladack i dought EKG could even read a papwer by j hicks.

      • February 14, 2016 at 4:14 am

        You’re right Ishi. To be able to say something profound and to say it with efficiency of speech is truly valuable. I read one such piece today that was written by Albertan and fellow Canadian, Wallace Klinck. He describes the value of Social Credit much better than I ever did. See for yourself:

        Ladies & Gentlemen,

        I have received an enquiry from Stephen Goodson, a South African politician, author and former non-executive director of the South African Reserve Bank and have replied accordingly:

        “Dear Stephen,

        “Thanks for your message and enquiry. I possess a number of photos of C. H. Douglas and will attach some which might be appropriate to your needs. If you have a problem with any of them I do have editing programs which can enhance photographs in various ways.

        “With regard to Douglas and Social Credit, I would emphasize that Douglas’s policy was to build up from the individual and not down from the State. He was opposed to placing the creation of credit solely in the hands of the State, saying that this would ensconce the power-centralizing policy of the Money Power in an almost impregnable fortress. His intent was to break the monopoly of credit by assigning to the State the responsibility of constructing a National (real) Credit Account of its actual or real resources or productive assets which if used might produce price-values. This would be an accounting of the nation’s real credit or potential ability to deliver goods and services. The NCA would be constantly augmented by the value of all new real capital assets. The State would be responsible for statistically determining the periodic deficiency of available consumer purchasing-power and providing additional consumer credit (drawn down from this National Credit Account) in the form of National Dividends paid to all citizens as an inalienable birthright and payments to retailers on condition that they reduce their prices at point of sale (i.e., establish Compensated Prices) in accordance with a variable ratio determined by the changing relationship between national consumption and production, representing the real as opposed to the financial costs of production.

        “The new “debt-free” consumer credits would replace the vast amount of bank-issued consumer credits created currently. These new credits would pass back through the price-system and be cancelled as available purchasing-power in the usual way. They would not, however, leave a trail of inflationary financial debt as a mortgage against future production cycles. Upon being spent they would allow industry fully to recover its financial costs and permanently liquidate these costs without carrying them forward as outstanding debt as is currently practiced. There would be no macroeconomic or overall need for consumer debt whatsoever. When any manufactured good is completed the physical costs of the process have fully been met and the financial system should reflect this irrefutable fact. Douglas was irrevocably opposed to any government policy of promoting human employment and sought a consumer-motivated economy which operates at maximum efficiency by displacing human energy as a factor of production by the utmost implementation of automation, robotization and artificial intelligence. Social Credit stands for a genuinely consumer-motivated economy and for maximized leisure. It’s policy is the decentralization of control of policy to individuals and is, therefore, opposed to institutionalized “Statism” of any kind, such as fascism, communism, socialism, Technocracy, Keynesian centralized credit administration, etc. I am attaching in PDF format a letter which Douglas sent to Hitler warning him of the catastrophe he risked precipitating through the National Socialist rigid Puritanical adherence to a policy of “full-employment.”

        “Sincerely
        Wally Klinck”

      • February 14, 2016 at 4:31 am

        Well that’s the thing EKH. You accuse me of ignoring some work you did that you deem important. You are doing exactly the same thing by dismissing the value of social credit without having done your homework. I don’t claim authorship to the ideas I expressed earlier. They and many more were the work of CH Douglas in several books, and dozens of speeches, lectures and magazine articles – spanning several text books and read by millions in his day. He gave testimony to several parliaments, royal commissions and participated in public debates with such high British society as the Chancellor of the Exchequer, contemporary economists and politicians… In Britain, Canada, USA, Japan, Australia and others. He figured everything out. Tens of thousands – if not more – agree with this. Many more than that believed him in his day. Political parties came out of it that exist to this day.

        Read the other email my friend Wallace wrote to a South African politician this past week. He clearly checks off all the high peaks of social credit economics that I have never heard better. If I have been a little arrogant, and I have, I apologize. I remain unshakable in my belief in the extraordinary value of social credit to humanity. One day when the world is at peace, it will be this kind of economy that will be serving man. In the present system, men serve the economy. What’s wrong with that picture?

  8. graccibros
    February 11, 2016 at 5:41 pm

    Egmont:

    Are your cited equations saying, explaining why labor’s share – the wage share – of either profits or GDP has been declining since the late 1960’s in the US…or merely that if followed we would have higher growth and profits…which might, by some other unspecified economic mechanism (or a variety of non-economic ones, like politics and the civic distribution of power …or even differently held theories of gemein and geschell…shaft…) improve the standing of the bottom 60-80%?

    Could you clarify that for me…and forgive me if I missed something in your otherwise tight train of logic…thanks… I followed Bill Clinton’s career and his crew of economists pretty carefully but they didn’t explain it to me either…

  9. Rhonda Kovac
    February 11, 2016 at 7:54 pm

    Agree with John Herman.

    I believe that Ken Zimmerman’s pessimistic response, although understandable, is nonetheless unwarranted on several counts.

    First, it’s hard to predict the waves of public opinion and how these can affect Congress. Two years ago we would have considered it laughably impossible that tens of millions of Americans would make Bernie Sanders. an obscure Independent Senator from Vermont with a socialist progressive agenda, a front runner in a U.S. presidential election. And though it is true that Congress as it is presently constituted would never permit needed policies to be brought to its floor, can we assert the same for two years from now?

    Second: We should expect failures when attempting great things. That’s part of the process by which advancement on the social scale happens. A particular failure can still be a gain, legitimizing the goals and building support for future attempts. So long as we don’t fold at the first difficulty.

    Most importantly: Under the guise of ‘realism’, discouragement only makes things worse. Because of it we fail to even try. By caving in we are reinforcing the corrupt power that we want unseated. And when discouragement becomes a habit, which is easy to let happen, it also becomes a force, entrenching the status-quo, sabotaging not only reform but also our will to make reform.

    It’s always a risk to try something that could fail. And the costs of making change can be great. But the costs are greater from letting things continue as they are.

    The only thing worse than trying and failing is not trying at all.

  10. Ctesias62
    February 12, 2016 at 4:24 pm

    Well all of the “flag wavers”,marxians, keynesians,political economists & Professors of a “sorta-kinda” like mind re inequality can now retire feeling validated by EKH’s ineffable scientific logic, which says that they’re correct for the wrong reason. Also of course he mentions merely in passing that we have poorly designed institutions.

  11. February 14, 2016 at 11:03 am

    Liam

    I have no problem at all with CH Douglas’s political program, I have only a problem with his underlying economic theory. The point is: right policy depends on true theory. If you intend to fly to the moon you first have to figure out the law of gravity (and some others). If you want to improve the economy you first have to figure out how it works.

    This is an economics blog and in my understanding the uppermost goal is to replace standard economics, which is provably false, with the true economic theory.

    “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

    Economists do not have the true theory. Neither Walrasians, nor Keynesians, nor Marxians, nor Austrians, nor Douglasians know how the economy works. So they are in no position to promise a ‘better’ economy. Worse, with false economic theories in their scientifically incompetent micro brains economists actually cause or worsen crises.

    How convincing are economists who promise to create the good society but cannot do elementary accounting? To recall, the profit theory is false since Adam Smith. Economists literally do not know what they are talking about.

    So: first get economics right, then get the economy right.

    Egmont Kakarot-Handtke

    • February 16, 2016 at 7:33 am

      With all due respect, you just dismissed me and the tens of thousands (millions over the past century) of people who stand with me with your statement “I have no problem at all with CH Douglas’s political program, I have only a problem with his underlying economic theory.” You offered not a shred of evidence to support it. So I am a moron right? I read thousands of pages of books, wrote my own 400 page book, constructed a spreadsheet to model it, have debated its merits for years on the public-banking forum and social-credit forum on google groups and everything I have learned is dead-wrong on your say-so right? I am beginning to think Ishi might not be so far from the mark.

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