Paul Krugman says that we may have reached a “depressed equilibrium” that unemployment may remain elevated for a long, long time to come:
We had what felt like an epic intellectual debate over austerity economics, which ended, insofar as such debates ever end, with a stunning victory for the anti-austerity side — and hardly anything changed in the real world. Meanwhile, the pain caucus has found a new target, inventing dubious reasons for monetary tightening. And mass unemployment goes on.
So how does this end? Here’s a depressing thought: maybe it doesn’t.
True, something could come along — a new technology that induces lots of investment, a war, or maybe just a sufficient accumulation of “use, decay, and obsolescence”, as Keynes put it. But at this point I have real doubts about whether there will be events that force policy action.
First of all, I think many of us used to believe that sustained high unemployment would lead to substantial, perhaps accelerating deflation — and that this would push policymakers into doing something forceful. It’s now clear, however, that the relationship between inflation and unemployment flattens out at low inflation rates.
Last week, I wrote a piece arguing much the same thing:
It is also possible that we have reached what John Maynard Keynes called a “depressed equilibrium” where capital continues to be hoarded and not used to raise employment levels back to the pre-crash norm, and grow the economy out of the slump. With a private sector awash in debt and refusing to take on more to act as a source of growth, the only other agency with the ability to borrow and spend the economy back to growth is the government.
As the rate of technological growth accelerates, the chances of a technology shock that greatly increases investment seems to rise. New technologies coming onto the market in the coming years — lower-cost photovoltaic solar, 3-D printing, synthetic fossil fuels and more exotic things like asteroid mining — have a lot of potential to create a lot of demand. Yet, just as advanced manufacturing technologies have done in the past, they may end up destroying more jobs than they create. This could further accelerate the big post-2008 redistribution trend — falling wage and salary incomes and rising corporate profits as a percentage of GDP:
This general trend toward the obsolescence of labour is worrying. With less and less demand for labour in the economy due to things like robots, computerisation and job migration we could see more and more people sitting around doing nothing and collecting unemployment cheques. Perhaps this is the accidental fulfilment of the leisure society that Keynes envisaged. As humanity has gotten better at fulfilling our material needs, it takes less labour to do so. The unemployed are caught between a rock and a hard place; social and governmental expectations that able-bodied people should work, up against the economic reality that the demand for labour just doesn’t exist.
Without a technology shock or other exogenous shock, there may be another route out of the depressed equilibrium, and mass unemployment. I am not entirely convinced by Krugman’s argument that high unemployment won’t produce systemic price deflation. With core inflation at its lowest point in history in the United States and falling it does appear possible that the deflationary trend is beginning to accelerate even as headline unemployment gradually creeps down. This has after all been the norm in Japan for the last twenty years. With accelerating deflation, it seems much likelier that we will see both monetary and fiscal policy throwing money at lowering unemployment. But in the long run, if the trend toward the obsolescence of labour continues, this may only buy some temporary respite for the unemployed. In the long run, individuals, governments and society may have to adjust attitudes toward work and employment and adapt to a new normal encompassing less work, and more leisure.
azizonomics 
Traditional capitalism has to create scarcity. Possible techniques for this have been war, imperialism, waste, and consumerism, but all of these now seem to be too dangerous or effectively exhausted. So it might be time for cap fans to start thinking about how to make a transition to a 6- or 4-hour work day (for example).
If wages kept pace with productivity (as shown by CEPR research lately) there may have been sufficient aggregate demand such that the now-unemployed workforce could have developed and employed themselves in a stronger US service sector.
If wages had kept pace with productivity over the past 40 years, maybe the displaced workers could have developed and employed themselves in a stronger US service sector.
You have high unemployment because is is more profitable to steal from everybody [financialization] then it is to put productive capital to work.
Krugman is a f******** idiot, as well as being an incredibly lame apologist.
Once balance is returned to the system, it will produce jobs once again, as technology will simply facilitate an increasing level of productivity [unless there are those out there who believe that all the material needs of the 7B people on this planet have been met].
With all the financial and economic insanity going on out there, how could people believe that employment in the 1st world countries would be unaffected?
Get rid of 99% of the financial parasites, reign-in globalism, incentivize productive economic activity, and the jobs will return.
“This general trend toward the obsolescence of labour is worrying. With less and less demand for labour in the economy due to things like robots, computerisation and job migration we could see more and more people sitting around doing nothing and collecting unemployment cheques.”
When business is held responsible for cradle to grave care, of course every effort will be made to avoid hiring humans. When inflation is controlled, which it has not been for 30 years, and humans are asked to take care of themselves the economic dynamic is changed for the better.
Did the internal combustion engine that replaced much in the way of manpower lead to economic decay and stagnation? If you had to gamble on government or the free market to chart a course forward, which would you take? I’ll take the free market– that is, an unencumbered free market and maximum efficiency.
EIC?
National governments cannot afford much more systemic deflation without risking outright default on debt! I’ve no doubt the solution will be found, as it has so often has in the past, in catastrophic warfare! Not only will it spur industrial production but it will rid the welfare roles of Mr. Kissinger’s “useless eaters”. TNX!
I am sorry to say that you are right. At the end of the day we have high unemployment due to structural change, and these people have no useful place in the economy, and must be fed, housed and cared for. In the 1930’s the Government adopted all manner of techniques to reduce unemployment, but the fact is there were too many people, for the available work.
Note after WW2 economies grew once again.
I think the alternative is giving a lot of these people meaningful roles in cleaning the streets, assisting the elderly in nursing homes and teaching children to read for example. Once we assign a value to this work, then it makes sense to pay these people a living wage, as opposed to straight welfare. Working for the Dole is a positive. Not a negative.
I wrote a blog post myself along these very same lines a couple of years ago: http://oddbaldliberal.blogspot.com/2010/11/so-die-already.html
Core inflation is irrelevant, in fact it is a ruse and a hoax. Excluding food and energy from inflation has no basis in theory or fact. A price presented to the market and paid by the market is the price supported by the money supply. And there are no exclusions or adjustments to inflation. What we have in the U.S. is 70s stagflation. The only difference is that the Fed lies about the inflation and long term discouraged workers are no longer counted as unemployed as they were in the 70s. Sorry, but I have seen all of this before.
By no measure do we have 70s style stagflation. The key difference? Interest rates. In the 70s capital was not slack but widely-employed. Now capital is extremely slack. Once you understand that, things are much clearer.
Sorry. I forgot to say. Interest rates today are totally artificial given the phony inflation discounted in them and the fact that the deficit is funded by at least $3.5 trillion in Fed. Reserve electronic banking entries (and counting with the continuing QE) and that’s just the electronic entries we know about. House of Rep. testimony suggested that at least $9 trillion has escaped audit.
John – you are cool but you are drinking the Obama, Greenspan, Bernanke, Krugman Kool-Aid.
I got sick of making predictions about future inflation that didn’t come true, and I learned about endogenous money.
I would have to agree with you, in respect to artificially low rates and unemployment figures.
I had a guy tell me that gold went from $250 to $1800 and we had “no real inflation” during that period (2001-2011). I readily sent him two items for that period: bread went from .99 to 2.59 and gasoline went from 1.30 to 3.55. I asked him to give me any good or service and I will provide him with the inflation. BTW, higher education price inflation in the U.S. is over 100% in that period.
U.S. 10 year treasury is at 2.78%. That is up 20% in just the last three weeks with very little good news on the economy to justify. The driving force has been the suggestion, just the suggestion mind you, that QE will be tapered which was later refuted!!
But what is your hard, supporting data that “capital is slack”? And is that the same quality of capital as in the 70s? That is, capital derived from productive activity or derived from QE?
This graph illustrates the point. Capital is very slack — cost of money is very low, and labour is also very slack — unemployment is high:
It appears then that the problem lies with government policy especially the White House which in the U.S. is stifling that all too critical demand for credit. The U.S. experienced very low unemployment in the 90s. What was different? Primarily Clinton deciding to help business rather than burden it. Obama is bent on burdening it on the heels of Bush’s Depression.
I don’t believe that robots are replacing humans. The industrial age has given us far too many advances replacing labor that a dynamic economy (free markets and economic freedom) directed toward other purposes. Socialism is a huge problem in the world. Neo-socialism has put the EU on life support in a mere 10 years with several members already declared brain dead.
The thing that has put the EU on life-support is returning to an artificial gold standard called the Euro system. Direct correlation, and described mechanially by the modern monetary theorists before the Euro was in place.
I, for one, if I am to be down and out due to high unemployment, will be down and out in the Magic Kingdom.
My point entirely.
Bring on leisure. Bring on Distributive money and taxation systems. Bring on the citizens dividend and the compensated retail discount of Social Credit. Even if one does not choose to believe Douglas’s A +B theorem….the real world circumstances have brought about the necessity of his ACTUAL solutions anyway…..that is if you believe that “systems were made for men, not men for systems.” And to anyone who doesn’t actually believe that this statement is the correct and ethical one….everyone else ought to say….Fuck off!
“…that is if you believe that “systems were made for men, not men for systems.” And to anyone who doesn’t actually believe that this statement is the correct and ethical one….everyone else ought to say….Fuck off!”
Systems are made by men, for themselves. It is our nature to do that which enhances our survival, unless [of course] they happen to be fortunate enough to transcend their ego, then they can be truly selfless, but, let’s not hold our breath too long on that one.
Otherwise, people will do what people have always done, that is, use the power of the group for their own self-enrichment. The larger and more powerful the group [viz., governments – corporations] the greater the self-enrichment.
It’s how you end up with billionaires.
Billionairishness may cease to be meaningful. That may be what is happening now. A billion can buy a lot of politicians, but the politicians turn out to be fools and con men. It can buy a lot of military adventures, but the military adventures just make people more frightened than ever. It can buy a lot of surveillance, but then it turns out that the people you’re surveilling can surveille you back.
“It is our nature to do that which enhances our survival, unless [of course] they happen to be fortunate enough to transcend their ego, then they can be truly selfless, but, let’s not hold our breath too long on that one.”
Actually our natures are a lot more broad than that and it doesn’t actually take some arduous self transcending process to tap into that other less culturally defined aspect of our natures. It DOES take a relatively smallish percentage of us becoming very vocal that we want that better aspect of our nature having some actual symmetry…..in our temporal systems, specifically our economic and monetary ones. That temporal structure then will constantly enable that better nature instead of inhibiting it….like it does now with the current systems.
Instead of speculating on such, simply observe what is taking place and then you will know what our nature is. Our nature does not change, only the conditions which define our situation changes.
It is not a few enlightened people that change the course of events, but instead, the course of events that make it possible for our nature to manifest itself in a way that things move [forward].
Otherwise, why is it that all previous “injustices” lasted so long when there have ALWAYS been people who understood and many who gave their very lives in an attempt to change social conditions.
For example, why is it that the current non-sense still goes on when only a fool fails to grasp the basic situation?
Because the current system Does have a life of its own, or rather an inertia that requires (and is not currently organized) serious individual mass communication of the necessity of the correct changes.
The actual answer is that nobody knows why, which is the same answer to all questions intellectual.
The human mind is simply incapable of grasping even one nano-moment of reality.
Private central banking was created for private profit. Private profit should not be guaranteed by public taxation in it’s many guises, but this seems to be the only game in vogue for the parasitic self-enrichment crowd.
Look at the completely ruined economic situation Hitler inherited from the Weimar Republic, and how he turned that around in 4 years. He seized the Reichsbank and nationalized it, and issued fiat to the people for all services rendered for massive public works programs. We do have the ever-crumbling infrastructure we could replace with the generation of young people who are currently sitting on their hands ( a sinful waste of human potential) due to the structure of our economic system. There will never be an end to people who want to eat and are willing to work for it. But there should come a natural end to artificial scarcity ensuring fiefdoms of usury and peonage for everyone else.
For obvious reasons, it is quite unwise to claim Hitler as some kind of positive economic example.
Of course, I completely agree about infrastructure and the greenbacks…
Being that the truth of any matter is elemental, and since this economic system has reached maximum complexity [maturation], it therefore stands to reason that the journey from labor-value performed to the derivatives [designed to insulate the casinos and its players from the realities of the market-place], is fraught with landmines, booby-traps, and other surprises put in place with the purpose of diverting ones attention from said truth.
In other words, there are no jobs for a very simple reason, which is that this is an economy designed by the few [financial/MIC/government elite], for the purpose of serving their interests. Observe any banana republic and you will witness the same basic design.
In the U.S., if you are on Wall Street or in Washington, D.C., does it matter whether 1% of the population has most of the money? Would it not be easier for a Wall Street bank to deal with a smaller number of people who all have a great deal of wealth? Is it not a great deal easier/more efficient to have 100 customers who are all billionaires then to have 100,000 who make $20./hour?
Economy of scale has led to the above thinking and it is pervasive. Everybody in the U.S. [for the past three decades] has been going for the markets where people still have money, and this process that has furthered the consolidation/disparity.
Corporatism can’t last very long because it accelerates the concentration of capital/power to the point where the system fails [as this one has]. The fact that there are as many jobs left is, perhaps, what’s most interesting, because there are an enormous amount of people working at not doing very much [in a productive sense].
“The actual answer is that nobody knows why, which is the same answer to all questions intellectual.
The human mind is simply incapable of grasping even one nano-moment of reality.”
I’m sorry, this is just sophistry. Answers in the temporal world exist. You might have to keep looking at them in present time and periodically compensate for them…as Social Credit correctly does, but in the same way that flight is really controlled falling so the economy can also serve us…if we confront the most basic problem that is preventing its stable flight.
BFWR: What IS “the most basic problem”? I have an idea on the source/cause of “basic problemS” preventing stability, growth, more jobs, etc., but please you go first.
The most basic problem is the act of production itself is economically destabilizing. It is destabilizing because it results in a higher rate of flow of prices than it does the rate of flow of individual incomes. Hence it (the productive process itself) is price inflationary. Hence it is also individual income and business profit deflationary. Keynesian stimulus attempts to rectify this but it only allows money to be loaned by banks or injected by government into the economy. But this only re-initiates the scarcity of individual incomes that is the nature of production. The solution is a direct GIFT of money to individuals…before it goes into the economy and re-initiates the scarcity. Then every month statistics are complied (easily doable in our cybernetic age) and the costs of consumption (what we buy) and the costs of production (all of what was produced in the same period) are equated for the consumer by discounting prices generally. Merchants participating in the discount would receive the amounts discounted so that they could remain whole on their overhead and margins of profit.
“I’m sorry, this is just sophistry.”
Of course it is. Those who know, know because they know what they can not know [which is everything (intellectual)].
“Answers in the temporal world exist.”
OK, tell me what you believe you know, and I will tell you why you do not know it in the least.
Social credit??
This would be like marrying Adolph Hitler to a black widow spider!
Impermanence,
I’m sorry but your mystical mysticism is unsatisfactory for anyone who wants to actually and effectively deal with temporal problems.
As for Social Credit being as deadly as you claim that again is mistaken mostly because it deals with the economy’s most basic problem in an ongoing fashion. In other words it effectively deals with a temporal problem.
“I’m sorry but your mystical mysticism is unsatisfactory for anyone who wants to actually and effectively deal with temporal problems.”
The best we can do is be acutely aware of what is happening. Awareness allows one to diagnose a situation as accurately as is possibly, as well as, precipitating much better subsequent decision making/outcomes.
I would think that this would greatly interest someone consumed with temporal existence.
“As for Social Credit being as deadly as you claim that again is mistaken mostly because it deals with the economy’s most basic problem in an ongoing fashion.”
Well, how about the elimination of all credit? Whether the trigger-finger is corporate or governmental, matters not. Living beyond ones present means is a very bad idea, something that any third grader understands once his parent[s] cuts off the pay-day loans [forwardation of his allowance].
“But in the long run, if the trend toward the obsolescence of labour continues, this may only buy some temporary respite for the unemployed. In the long run, individuals, governments and society may have to adjust attitudes toward work and employment and adapt to a new normal encompassing less work, and more leisure.”
The real question is, how much longer will it be sustainable to have an economy where the means of survival are obtained through wage labor for most people. If the technology shock does indeed create vast unemployment which will only worsen in years to come, our fundamental economic values may shift dramatically. It could mean the transition to a post market economy.
Oh there’s no maybe about it. Which of either profit or technological innovation are we going to do without? Neither is the correct answer because neither is actually a problem. The problem (for economists and the financial “industry”) is the interaction between the two. They both have a logic of efficiency. Profit of human labor and technological innovation of human effort and even human input. This has been foreseeable since Veblen. C. H. Douglas, luckily not a trained economist, looked at his discovery of the data in cost accounting from an engineer’s viewpoint of seeing a problem and fixing it with Social Credit’s two mechanisms over 95 years ago.
It is absurd to believe that technology [in and of itself] could cause [net] jobs to disappear. Do you people believe that we are somehow “special” and that the economics of the world up until now has somehow changed?
Do you folks believe that the 7B people living on this planet are not like every one of my neighbors in Southern California who would like to own every G-d thing they could gets their grubby hands on? Do you have any idea what the consumption potential of 7B must be? Unlimited, that’s what! Desires are truly limitless.
The system is broken, so jobs suffer just like everything else for the vast majority, but this will not last forever. Basic economics is the relationship between a single producer and a single consumer and no matter how much they corrupt this, it still remains the same.
In x number of years, the system will revert back to something that actually works again. There will be jobs and life will move forward.
You guys have been watching too many late night movies.
If you read carefully you will see that I didn’t actually say technology was going to do it on its own. It’s the interplay between profit making systems and technological innovation that is going to do it, and if you confront the logic of each and the fact that neither has to be a problem….that is if you enable individuals to be free with a sufficient gift of money. don’t get the idea that I’m against work. there will undoubtedly be a lot more work in a Social Credit economy…because there will be a lot more actual purchasing power that retains its purchasing ability. There WILL be a lot less consumer borrowing although that may pick up some after a while, but that will only mean more dividend so that production in each period of time that the dividend is distributed (likely monthly) can liquidate all consumer prices that individuals care to purchase. Mortgages will not be repayable in a month, but they will be subject to Social Credit’s discount mechanism so they will be less than now, and more money will mean that foreclosures will be much lower than ever before.
Consumer finance makes up to 65-70% of GDP. When that amount is reduced by 50-60% with immediate purchasing power….how much less continual money creation will that mean? A gigantic amount, that’s how much. Then all of the Austrians fixated on Fractional reserve lending and FED money creation will have to scratch their heads and admit they’ve been wrong about it being the cause of the problem all along.
As for the wworry that everyone will want to have 4 jet skis, a boat and a Cadillac number one the dividend likely won’t be that generous for quite some time, and once you actually change the underlying psychology of economics from scarcity, insecurity, hopelessness and mere exchange to confidence, hope, love and a strong sense of Grace….the individual whose nature has had the capability of creating such experiences for tens of thousands of years will be free to do so more often than now when these are actually inhibited by the system. Confidence, hope, love and Grace are by definition stabilizing and centering experiences that will engender more rational and intelligent thinking and acting. This is all basic human behavioral science and psycho-analysis.
“This is all basic human behavioral science and psycho-analysis.”
Exactly, total bullshit.
Eliminate debt and you’ll rid yourself of almost all of the economic problems that plague mankind [no science/psycho-babble necessary]. This has been known for thousands of years.
Over reaction. Debt itself is not the problem, it is continually building and eventually unrepayable debt. With sufficient purchasing power in the hands of individuals that build up will not be the iron clad reality it is presently.
Your mystical tendencies make you too prone to (flawed) psychological generalization. I’m sorry your thinking is too rigid and exclusionary.
“Debt itself is not the problem,…”
Debt is EXACTLY the problem and here are a couple of reasons why.
Most people intuitively get that banking [and the creation of debt] is not such a great thing, but, they simply do not understand why this is. They believe that selling other people’s money [or worse, creating money out of thin air], is poor business, at best, more aptly termed fraud. And they are correct.
What they fail to grasp is that is not really money they are selling or creating, but instead, it is labor-value. Money is the representation of labor-value in this economic system.
So, what happens when you create labor-value out of thin air, and then loan this labor-value out to other people? After you have spun your straw into gold, you create asset bubbles, and this means to purchase these inflated commodities only through participating in the feedback loop in your system, that is demand for your phony money as the only method to obtaining the necessities of life, e.g., transportation, housing, etc.
In other words, it is the creating of money in the system that has allowed the average automobile in the U.S. to be approximately USD30K. How many people can actually afford to plunk down this amount of money for a car? Not too many.
Being that financial system has used people’s desire to create this situation, it becomes quite the EVIL ploy, a state-sponsored corporate financial scam that takes advantage of an entire population, but can always be blamed on the victim for giving into their desires. Quite ingenious.
Debt, the bringing forward of future income is a bad idea. Imagine people living within their means, commodities priced at levels commensurate with actual labor-value earned. Sound money with no inflation, no asset bubbles, no financial parasites, limited government [government grows proportionally with the increasing corruption of the financial system].
No more than you can bring anything else forward from the future, attempting to do this with money further convoluted an already abstracted system to the point of people telling us how wonderful it is to have such a privilege [going into debt].
Debt is slavery through the banks and the governments who allow this travesty to continue.
“I’m sorry your thinking is too rigid and exclusionary.”
Really? I will try to become more flexible and inclusive [if this would please you].
@ impermanence
While many of the things you say about debt are true, did it ever occur to that perhaps over-indebtedness is not the problem itself but a symptom of a bigger problem? You seem to have some understanding of the concept of a bigger problem since you mention banks and government’s role in creating such a situation. However by solely focusing on debt as the bad guy you aren’t really looking at it in the big picture, and in fact you come off more as being hostile to those businesses and households which need to go into debt to survive in the monetized market economy. But you should really be asking yourself, while debt may be the engine which powers much of these trends, what is driving the engine? Why are economic actors being driven to take on such debt loads in the first place?
“But you should really be asking yourself, while debt may be the engine which powers much of these trends, what is driving the engine? Why are economic actors being driven to take on such debt loads in the first place?”
Mr. Hobbes, I truly appreciate your desire to get to the heart of the matter, so let’s examine what is driving the system.
This is a system where debt not only is king, but Jesus, Allah, Buddha, or whatever your spiritual flavor might be. EVERYTHING that happens in this economic system is designed to increase debt. And I believe you understand the nature of the Ponzi scheme that defines the end-game we now confront.
Human beings are what they are, and no more than you can expect a bunch of high school seniors to handle your gift of 100 kegs of beer, six pounds of marijuana, a rather large container of coke, and a garbage bag full of mushrooms [at their prom], can you expect a group of bankers to be responsible with money. It’s never worked and will never work.
Debt is the mechanism bankers [financiers] use because it is the most efficient way to separate people from the labor-value earned, not only in the present, but horrifyingly, in the future. This would be similar to raping/murdering somebody in the future.
What is driving the engine, you ask, is man’s insatiable appetite to receive something for nothing, the greatest of all scams that has defined human economic activity from day one.
As long as people believe that they can receive this ultimate Holy Grail, none of the non-sense will stop, be in government taxation, Las Vegas style fantasy-lands of fraud, Wall Street style investment houses, or just the run-of-the-mills fraud that defines almost all business practiced with the blessings of Madison Avenue and the low-lifes that inhabit every business school from Harvard to Wharton to Chicago to London.
Even in its highest form, banking is nothing less than organized crime. The way it is generally practiced, though, it acts as a potent catalyst, stirring-up all the components that inhabit dark side of mankind.
Debt is PURE EVIL.
@ BFWR
“Neither is the correct answer because neither is actually a problem. The problem (for economists and the financial “industry”) is the interaction between the two. They both have a logic of efficiency.”
I would say that you are correct. Though I think what it really points to is perhaps a capitalist economic calculation problem of sorts whereby things which would normally be sunk costs in a profitless system where utility may be defined in an objective sense can become future costs in a for profit system where utility is defined in subjective terms. For example, if Robinson Crusoe builds an irrigation canal from a stream on his island, he incurs the sunk costs of the time and labor to build to canal, and perhaps the opportunity costs of choosing to take the effort to build it. However, once he builds it, it is a sunk cost which no longer affects him (unless it only makes things worse for him), if the canal ends up meeting his objective uses for it (by helping him lower the costs of obtaining water) then it can be said to have been utility increasing and thus worth it.
However, say that an irrigation canal is built in a monetized economy, where one has to pay money for labor and capital goods costs, then he needs to raise money in order to build it. If a government builds the canal and funds it through taxation of all the farmers who benefit from them, or from society as a whole, then it is still a sunk cost, which is not longer taken into consideration after it is finished. And its effect of increasing the utility of the farmers is still the same.
If the canal however is built by a for profit entity, then it must find a way to make that money back, money is invested into the venture with the expectation of making a return. The costs of construction and labor are no different than if a government built it, however the only difference is that while a government can pay for it via taxation and taking money from one part of the economy and giving it to another, a corporation cannot. So the corporation can either absorb the sunk costs through an economy of scale, and obtain the money from something like profits from selling seeds to farmers who can now boost crop yields, or it can fund it via user fees of the canal itself. However, if you fund it via user fees then you may hurt its utility, since the utility it gives farmers is now diminished as compared to the government situation where they can draw water from it free of charge. If farmers do not use the canal enough to pay for the investment capital put into it, then the corporation could go into bankruptcy, or sell it for a loss. And even if the corporation decides to make the money from selling seeds or crops instead, the boost in crops may cause a greater supply of crops in the economy, in which case the price and profit rates may fall, so that the corporation is still unable to make the money back to pay for it.
So in effect, what you have done is actually increased the cost of this project by making it for profit, because while sunk costs of a one time expense in developing infrastructure and technology are done and over with in the non-profit scenario, the costs are still there in the for-profit scenario, because now you need to find a way to make enough money to pay back the investors, and if you don’t, you could cause a default that could have a negative effect on markets, in which case you are merely shifting costs in a different, more harmful direction. Now, this does not happen in any old industry, as many investments can generate a return via user fees or economies of scale, but it does happen quite frequently with infrastructure and technology, as the efficiency brought by the new technology or infrastructure may have the effect of lowering the costs to users to the degree that the initial investors are not able to generate a return fast enough to cover the original input costs. And this will cause them to try to artificially raise the user fees in a way which diminishes the marginal utility of the new technology or infrastructure to users, in which case it is almost inevitable that the business venture will fail and overall increase the real cost to the economy in a way which is greater than if it were not done for profit, purely by virtue of the nature of which those costs occur.
This is why the capitalist profit oriented railroad building in the 19th century eventually led to the insolvency of railroad companies and a financial crisis. The utility of the trains was actually great, however, the benefits it brought did not come in the form of profit returns to railroad companies, but rather from the benefits it brought to towns along railway stops and businesses who used the trains. The boost in efficiency led to cheaper prices, which made it impossible for the railroad companies to generate enough revenue to meet the nominal costs of investment. The companies tried to artificially raise rates to make up for this, but businesses refused, since the increased prices marginalized its utility to them. As a result the railroad companies went bankrupt, along with their financiers in a debt deflation scenario.
However, 100 years later the US created a highway system. Its effect on commerce and efficiency was the same as the railroad. However, the Highways were funded via taxation, and the initial investment in creating them was a sunk cost, costs of maintenance were paid for via a gasoline tax. And since the initial investment was a sunk cost from taxation, it was done and over with, the government did not need make the money back in the form of user fees and such. And as a result, the US highway system did not lead to financial crisis and was in fact of greater overall utility and lower harm to the economy.
The difference of course lies in the relationship of profits to development. Now it is true that many governments do take on debt to finance infrastructure via bond sales, but that is a separate issue, if they are financed by one time expenses from taxation the cost is overall lower, and the benefits from it are externalized into the economy. If it is not financed by one time sunk costs, the costs are externalized to the future, and perhaps to the economy at large if the investment doesn’t work out. And of course, even if governments sell bonds to fund it, the costs are still less because governments can handle greater debt loads and can always inflate money to reduce real debts over time.
Either way there is still no such thing as a free lunch, but the art of political economy is to accept that fact, and then look to the different ways in which those costs can be expressed to see which way of expressing costs is the most ethical and sensible. And the fact is, the notion of making all things profitable expresses costs in a way that is worse than the notion of saying that some projects should not be seen as profitable in the sense that the project should pay for itself via user fees, and that instead they are expressed as sunk costs which are not shifted to the future. The latter method actually increases the objective utility it has for the economy.
Owners of capital will reap the rewards, via dividends from monopolistic companies, and cheaper production. Eventually the unemployed will no longer be able to participate.
The Trillion dollar question is, do we give a living wage to keep the masses from turning on the owners of capital, or do the Elite exterminate them, just like they did in every other global conflict.
The question is do we LET them do that. Actually if the traditionally productive economy would wake up and realize that an adequate individual income was in their interests they would throw off the onerous dominance of Finance. Fear of actual competition probably plays into why they don’t, but nonetheless it remains true.
“The Trillion dollar question is, do we give a living wage to keep the masses from turning on the owners of capital, or do the Elite exterminate them, just like they did in every other global conflict”
Unfortunately we may find out the answer to that soon enough. I think it could go one way or another. Though I will say that in this day and age, with cell phones, internet and nuclear weapons, such a feat would be harder than in previous eras. Just look at places like Egypt, where good old fashioned suppression used to work just fine to qualm the masses, it no longer works. Thus, if the monied powers are not able to use force to suppress the impoverished masses, they may resort to the next best thing: bribery. In which case, you may actually see that living wage or social dividend.
Thank God I don’t live in the USA. It is a powder keg with all those weapons at hand. No wonder they want gun control. When the system collapses, the Elite will need to find a new home.
I say they will keep things running as long as possible to enable the transition.
BTW I am running as a Candidate in the next Australian Federal election. Having watched critical news and debate since a child, I notice the latest main stream media analysis to be wanting, with Morning shows and Sunday morning time slots once dedicated to Business and Political Analysis, filled with “Light hearted” comedy and “Star” worship.
We can argue all we want about Philosophy, unfortunately in a Democracy, the voters are not as informed as they once were. I now feel for Socrates. He must have been disappointed in his fellow Citizens. The Power that Be understand the power of Democracy and MOB RULE.
I laugh my behind off when I hear Politicians and Government Policy makers talk about re-training and re-skilling the unemployed. These Training Programmes are run by small business who run some “mickey mouse” (Australian slang for FUCKING USELESS) program, just to get government funding. The Unemployed have all these inadequate “mickey mouse” skills. Still unemployed. the Government is deeper in debt, and a few “Parasites” make a fortune from Government funding.
The reality is I talk to small business owners all the time, and young people have USELESS skills due to incompetent teaching methods, and Government Red Tape and over zealous safety programmes and injury insurance schemes make it a nightmare to take someone on and give them a go. These craftsman who are self employed, trained in the Master Craftsman ways are about to retire. We lose REAL SKILLS in one generation if we are not careful.
Australia being 10 years behind Europe and the USA in SOCIALIST REGULATION has a chance to right this, and be the world leader in quality services and production.
“…“mickey mouse” (Australian slang for FUCKING USELESS) program,…”
Mr. Politician, are you attempting to take credit for, “Mickey Mouse,” now? 🙂
Perhaps you try try out your stances on this crowd.
Aziz – “The thing that has put the EU on life-support is returning to an artificial gold standard called the Euro system. Direct correlation, and described mechanially by the modern monetary theorists before the Euro was in place.”
The Euro system is akin to a stomach staple for an obese person, but they didn’t like the constraint. They PIGGED out and now don’t want to stop eating. It’s always hard to pull back.
By “eating” you mean “having jobs”. Maybe the countries in the Eurozone were a little excessive with their spending before the bubble burst, but now they and their populations are just being beaten up by a sadomasochistic monetary system.
“Maybe the countries in the Eurozone were a little excessive with their spending before the bubble burst, but now they and their populations are just being beaten up by a sadomasochistic monetary system.”
I tried explaining this to some libertarians in the context of Bastiat’s parable of the broken window and they didn’t seem to comprehend it. In their mind since government economic activity is illegitimate (which they offer no evidence to back up besides sopping moralism) any loss caused by things like austerity is not actual loss, because it any gain in the first place was “illegitimate”. Though that is not true, regardless of what you think about government spending, the fact is that governments have been around for thousands of years, and they have always had a real effect on the real economy, and so when you do something to alter that in a way which affects things like real demand, and you are still incurring a real loss. It is in effect no different than breaking the window, its just that they think that the window was a “bad” one to begin with, but that still doesn’t change the fact that you are essentially breaking a window in the hopes that people can make money cleaning up the broken pieces it leaves behind.
All roads lead to Rome due to Dictatorship.
Government is only useful for getting MASSIVE projects underway.
The Pyramids would have been uneconomic at the time, but I guess, through tourism, 3000 years later there is a net public gain.
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By “eating” I mean “living within their means”. They got given cheap and easy credit, and they went for it. There is a lesson: whenever you are offered something for nothing, run, as it never really turns out to be free and will cost you dearly. Someone has got to pay, and it sure isn’t going to be the ones who set the scheme up in the first place.
Let the population be beaten up. I mean this without any malice: it is the only thing that will wake them up. If they get the sh*t beaten out of them, they will never fall for it again, ever.
If the system is erosive of income and profit by nature and in its normal “good times” operation, blaming the victim makes no sense. I don’t disagree that some people may have gotten caught up in bubble psychology, but again, if the system, that is the productive process in its entirety is radically unstable….fix it. You can fix a system, you can’t outlaw stupidity or human frailty.
BFWR – I DON’T blame the people. Their only crime was being naive. The system is set up by the elite, and the people are sucked in [out of fear of being left behind, fear of there not being enough land left (LOL), claims of riches, whatever propaganda is spun]. The herd is continually being pulled this way and that, assaulted with inflation, ever-increasing taxes, etc.
I’m saying the only way you get smart or lift your head out of the sand is when you begin to suffer a little. Pain is what makes you look around, see what’s happening. It is what forces you out of self-centeredness.
Of course, the elite want bailouts, jubilees – they are anxious to get everything cranked up again. They are starving – of yield.
By bailing people and banks out, you perpetuate the system and you do no one any favours. People are sucked in again, hurt again, and the planet is stripped and mined some more. A perpetual rape.
It is the followers who dictate who the leaders are, not the other way around. If the followers don’t follow, the leaders are left flapping in the wind. But the followers won’t change or SEE if they keep getting bailed out.
When it comes down to, back out all of the debt and all of the money printing, and what you have left is the real economy.
It’s all we need.
Wouldn’t the alternatives be barter or communism? I’m not against communism, but not many people like it, which leaves barter, which is rather clumsy. Because the only way you can grease the economic wheels to spin quickly is by means of credit and debt — not necessarily money, which of course represents credit and debt of some kind, but at least accounts however denominated. I gather from reading Graeber’s book (Debt) that this has been going on for quite a while.
In regard to humans being obsoleted by technology, at least prostitution, sadism, and cannibalism will probably require human objects for quite some time.
Communism won’t work, because human nature has sociopathic predators who rise to the top of the system and are in the end more equal than others.
The key to solving mankind’s problems is vetting leaders with Sociopathic tendencies. It is the cancer on human history that has caused so much suffering.
Perhaps Sociopathy is a natural gene, designed to clinically cleanse the population when it gets too big. Being a Deist, I believe everything is created for a reason. Or is it a mutant gene that must be eliminated? Do we run tests to eliminate this gene, or does this breach the rights of Sociopaths to live?
I have no faith in leadership, be it the Government, Military or the Church. There are laws created for one class and another. Look at the Sociopaths who swept the Child abuse scandals under the rug, Look at Military Leaders who gave advice to Leaders to pursue their own careers, Look at Politicians who lie, cheat and steal from their Country.
It is all Sociopathy. Unemployment is usually a symptom of Sociopathy. Sociopathuc CEO, Bosses, usually make the decison to fire people, even if they performed well, because it is a means to an end. Profits get them higher rewards. Even if this is against the National interest or the their trusting staff.
How much of the off-shoring has been decided by Sociopaths. They are all after their interest and jump before their competitors do. In the end you have a spiraling collapse of industry. NO ONE HAS JOBS TO BUY PRODUCTS. In a 100 years the 1st world becomes the 3rd.
“Perhaps Sociopathy is a natural gene, designed to clinically cleanse the population when it gets too big.”
The Sociopath is simply an individual who uses the power of the group for their own enrichment [to the detriment of others].
It’s why groups don’t work; never have, never will.
“Because the only way you can grease the economic wheels to spin quickly is by means of credit and debt — ”
Why do you need to do this? Exactly whose idea was it that you have to have maximum economic output? Maximum anything always leads to dys-function and breakdown.
What you want is balance and sustainability.
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We’re in a very different situation from Japan. Our deficits are actually falling and our total debt levels have fallen. All of this has happened while nominal growth has been kept relatively stable so the debts can be paid. Total debt levels in real terms have fallen while the population demography here is much better. We don’t import all of our food and energy; in reality, we’re basically the Saudi Arabia of food. We have plenty of natural resources with a society very welcoming of immigrants. It’s like comparing apples and oranges.
If you are speaking of the U.S., massive deficits are already built in to the budget for years to come. The recent closing of the budget deficit (to a mere $400 billion or so) is an anomaly as we simply return to the employment numbers we had in 2005. Artificial interest rates have kept the deficits from exceeding $1 trillion to help our affirmative action president.
The world economy is in freefall. Look at the Baltic Dry Index. Look at the price of copper. All excellent indicators of future economic activity. U.S. stock market will crash any day now and the yuan joins the SDR basket in Sept. 2016. The beginning of the end for U.S. world dominance, which considering how the U.S. has managed its budget is a good thing.
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The austerity argument is over. Everyone should agree that once a nation becomes a nation of government dependents, austerity cannot possibly work. That is the point of no return to freedom that the socialists want.
The austerity argument IS over, but the supreme irony is that socialism is not going to actually solve the problem. Not because socialists are evil or something, quite the contrary they’re basically all well intended, but they miss the point that the problem is not profit but scarcity, that the economy is monetary not barter and that man’s ultimate worth is not just in his labor but in all of his purposes most especially Wisdom, Beauty and Graciousness. Systems were made for Man, not Man for Systems.
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