Category Archives: Economics

Wolfgang Streeck explains how to reform capitalism for a better 21st century

Summary: We have hundreds of ideas for small reforms of America, but few for radical reform of the capitalist system that runs it. As a demonstration of this problem, Wolfgang Streeck gives a profound critique of capitalism and Adam Tooze  one of the most powerful essays I have seen in a long time. This is part two; part one discussed how we drifted into this crisis of capitalism.

 

A General Logic of Crisis

By Adam Tooze,
London Review of Books, 5 January 2017.

Posted with his generous permission.

Review of Wolfgang Streeck’s How Will Capitalism End?: Essays on a Failing System.

Part two of two: looking at the end of capitalism, and beyond.

The publication of How Will Capitalism End?: Essays on a Failing System thus comes when Streeck has positioned himself as the leading intellectual proponent in Germany of a Gaullist vision of Europe from the left. Now that his cards are fully on the table it is a good moment to try to answer the question: how did Streeck turn critical theory into a vehicle for the assertion of the primacy of the nation?

In one respect at least the national turn has allowed Streeck to subsume what might once have been seen as a fatal weakness in his analysis into a consistent part of the argument. A truly remarkable thing about his work is that he discusses the future of capitalism entirely without reference to the place where the future of capitalism will surely be decided: Asia. That no doubt reflects the limitations of his professional specialisation – OECD industrial relations. China and India are beyond his ken.

But given the arguments he has been making, his Eurocentrism takes on a new meaning. If you are going to articulate the basic tension of the crisis as existing between a superficial, utilitarian universality on the one hand, and a ‘grandiose jointly produced diversity’ on the other, then Europe is, indeed, the classic terrain on which to make your case. Not that there isn’t nationalism elsewhere. But nowhere else has as many different nationalisms in such a tiny space and nowhere else has tried to merge them the way the EU has. India and China never subordinated themselves entirely to the dictates of neoliberalism, nor arguably has the United States: compared to the EU, Nafta was integration-lite. So if the EU stands for a peculiarly pure form of neoliberal capitalism – a basic contention of the Lexit camp – where better to make one’s stand than Europe? In rejecting the false capitalist homogeneity of the EU, one is saving Europe’s essence, namely its diversity. What could be a better expression of that grandiose diversity, after all, than the battle of Brexit, another round in the centuries-old cross-Channel struggle?

But Streeck is a political economist, so he isn’t content with civilisational arguments. He wants to talk about nuts and bolts, the real power behind the scenes. The particular vector of globalisation that has seized his imagination since 2008 is finance. As a somewhat surprised Martin Wolf remarked in the Financial Times, Streeck worries so much about debt you could mistake him for an Austrian economist. Debt, for Streeck, is an index of the unsustainable balance between democracy and capitalism. It’s the way the system borrows time. At times he takes this metaphor quite literally, describing credit as a mechanism through which ‘not-yet-existing virtual resources … are pulled forward from the future.’ Taken at face value that would suggest a very odd view of economic reality indeed.

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The Red Warning Flags In Today’s Employment Report

Summary: the key things to know about today’s job report.  (Second of two posts today.)

  • The December job numbers show that nothing has changed.
  • The US economy remains locked in slow gear, slowly slowing.
  • The exciting stories about growth are mostly noise or cherries picked from the flood of economic numbers.
  • Combined with a hawkish Fed and high valuations = a dangerous market for investors.

See my full report at Seeking Alpha.

Free registration at Seeking Alpha requires only an email address.

 

Wolfgang Streeck asks “How will capitalism end?”

Summary: Lost in the trivia of the daily news, we can easily lose sight of the great issues shaping our times.  Such as the future of capitalism, tested by demographic change, slowing growth, rising inequality, and political turmoil. Here is the first of two posts with insights by Wolfgang Streeck and Adam Tooze; one of the most powerful essays I have seen in a long time. This post examines how we came to this point, on the brink of great events. In tomorrow’s post they discuss the forces that will test and perhaps break capitalism.

 

A General Logic of Crisis

By Adam Tooze,
London Review of Books, 5 January 2017.

Posted with his generous permission.

Review of Wolfgang Streeck’s How Will Capitalism End?: Essays on a Failing System.

Part one of two: how we got here.

 

‘Whatever it takes.’ These words, spoken by the president of the European Central Bank, Mario Draghi, to a crowd of investors in the City of London on 26 July 2012, have come to represent the symbolic end to the acute phase of the global financial crisis. In the political sphere, by contrast, where words are supposed to be everything, we have not yet been able to draw the line. More than four years on, we know that in 2012 the political fallout was only just beginning.

It was in December 2011 that David Cameron reopened the European question by opting out of the new ‘fiscal compact’ drawn up by Angela Merkel and Nicolas Sarkozy with the aim of enforcing budget discipline across the EU. In the US in spring 2012, Mitt Romney emerged as the candidate from the Republican primaries, but the freakshow anticipated the Trump campaign to come. In Italy the ousting of Berlusconi in a backroom coup in November 2011 and the installation of the ‘unpolitical’ economist Mario Monti as prime minister set the stage for the emergence of Beppe Grillo and Five Star in the local elections of May 2012. In France as the fiscal compact began to bite, François Hollande’s presidency was dead almost before it had started.

Amid all these events, Germany can easily seem like a bastion of stability, with ‘Merkel über alles’ its anthem. But beneath the smooth surface, Merkel’s grip on the chancellorship has since she took office in 2005 been supported by three successive coalitions. And by early 2013 it was clear that her partners since 2009, the free-market, libertarian, liberal FDP, were in trouble. They were being outflanked on their right-wing by a new formation, the AfD, the Alternative für Deutschland, whose focus in 2013 was not immigration but passionate opposition to the euro. Like much of the German right the AfD was indignant not about austerity, but about the failure of Merkel to back an even harder line. The AfD didn’t break the 5 per cent threshold required to enter parliament at its first try, but it took enough votes from the FDP to drop it out of the Bundestag, leaving Merkel to form a new coalition with the Social Democratic Party (SPD).

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One of the 20th century’s top minds sees a great 21st century for humanity

Summary: As part of our holiday festivities, here’s an article by one of the great intellects of the 20th century.  John Maynard Keynes made seminal contributions in statistics, risk management, and (above all) macroeconomics. Here he looks at our future, seeing things already happening yet about which we remain unaware — with even better news in our future.

Comet 's office of the future

“Economic possibilities for our grandchildren”
by John Maynard Keynes,
The Nation and Athenœum, 11 and 18 October 1930.

 

Today’s economic pessimism

We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth cen­tury is over; that the rapid improvement in the standard of life is now going to slow down — at any rate in Great Britain; that a decline in prosperity is more likely than an improve­ment in the decade which lies ahead of us.

I believe that this is a wildly mistaken inter­pretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another.

The increase of technical efficiency has been taking place faster than we can deal with the problem of labour absorption; the improve­ment in the standard of life has been a little too quick; the banking and monetary system of the world has been preventing the rate of interest from falling as fast as equilibrium re­quires. And even so, the waste and confusion which ensue relate to not more than 7½% of the national income; we are muddling away one and sixpence in the £, and have only 18s. 6d., when we might, if we were more sensible, have £1; yet, nevertheless, the 18s. 6d. mounts up to as much as the £1 would have been 5 or 6 years ago.

…The prevailing world depression, the enormous anomaly of unemployment in a world full of wants, the disastrous mistakes we have made, blind us to what is going on under the surface-to the true interpretation of the trend of things. For I predict that both of the two opposed errors of pessimism which now make so much noise in the world will be proved wrong in our own time — the pessimism of the revolutionaries who think that things are so bad that nothing can save us but violent change, and the pessimism of the reactionaries who consider the balance of our economic and social life so precarious that we must risk no experiments.

My purpose in this essay, however, is not to examine the present or the near future, but to disembarrass myself of short views and take wings into the future. What can we reasonably expect the level of our economic life to be a hundred years hence? What are the economic possibilities for our grandchildren?

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Trump forced the Fed to raise rates. The results could be ugly.

Summary: Trump’s unexpected election forced changes in the forecasts and plans of the Fed’s leaders. Today’s decision to raise rates is their first result. Janet Yellen was quite candid about this. The implications of the rate rise are complex. The effects might prove calamitous.

Janet Yellen

Brendan Smialowski/AFP/Getty Images

Janet Yellen’s remarks at the press conference

She clearly pointed to Trump’s plans for a combination of tax cuts plus large increases in infrastructure and military spending. The Fed’s leaders have obviously been thinking about the effects of the resulting massive deficits — and decided to preemptively strike against them.

“…We’re operating under a cloud of uncertainty at the moment, and we have to wait and see what changes occur and factor those into our decision-making as we gain more clarity,”

“…Changes in fiscal policy or other economic policies could potentially affect the economic outlook. Of course it is far too early to know how these policies will unfold. Moreover, changes in fiscal policy are only one of the many factors that can influence the outlook in the appropriate course of monetary policy.”

“…There may be some additional slack in labor markets, but I would judge that the degree of slack has diminished. So I would say at this point that fiscal policy is not obviously needed to provide stimulus to help us get back to full employment. But nevertheless let me be careful that I am not trying to provide advice to the new administration or to Congress as to what is the appropriate stance for policy. There are many considerations that Congress needs to take account of and many bases for justifying changing fiscal policy.”

“…Our decision to raise rates should certainly be understood as a reflection of the confidence we have in the progress the economy has made and our judgment that that progress will continue. …It is a vote of confidence in the economy.”

“…We want to feel that if the economy were to suffer an adverse shock that we have some scope through traditional means of interest rate cuts to be able to respond to that.”

From Reuters. Also see Yellen’s opening statement at the press conference.

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Slow Economic Growth

Three important things to see in today’s jobs report

The monthly jobs report creates a flood of exciting news stories.  Most of these discuss small fluctuations in its many numbers, most of which are just statistical noise. Here are three things you need to know about job and wage growth. They are the key trends seldom mentioned in the news.

See my full report at Seeking Alpha.

Free registration at Seeking Alpha requires only an email address.

 

The annual Budget Games begin: Trump vs. Congress to control spending

Summary: Now that the Anything But Issues election is over, the media realize that there are issues other than racism and sexism — and debates other than those over the ephemera that dominated the election. Alexander Bolton of The Hill kicks off serious coverage of the Trump administration with “Deficits could stand in the way of Trump’s agenda“. It’s a powerful sequel to yesterday’s post, See the warnings about Trump’s infrastructure plan. It’s betraying populism.

Remember all those GOP tirades about Obama’s deficits?

The GOP majority seems unlikely to allow the fantastic deficits necessary to fund Trump’s promised hat trick of programs: more money for America’s already massive military, rebuilding America’s infrastructure, and tax cuts for the rich. Unfortunately for the 1%, the Federal government doesn’t spend enough on the poor to feasibly balance the budget on their backs. Congress seems likely to fully fund only increases for the military (fertilizing the MIC money tree) and tax cuts for their 1% paymasters.

Net impact on America: zero, leaving only debts for the future — much like the Reagan and Bush Jr. deficits. The tax cuts of those two Presidents came close to wrecking the government’s solvency. Third time’s the charm!

When reading this, remember that a properly led Congress is the most powerful branch of the Federal government. A President inexperienced in managing Congress further boosts their power.

Excerpt from “Deficits could stand in the way of Trump’s agenda
by Alexander Bolton at The Hill.

“Trump called during the campaign for a $1 trillion infrastructure package, $5 trillion in tax cuts, increases in military spending and the repeal ObamaCare, which could cost more than $350 billion over 10 years. At the same time, the president-elect has promised “not to touch” Social Security or make cuts to Medicare.

“…’We did not hear anything about entitlement reform from either of the candidates, and that’s a serious issue,’ said Michael Sargent, a research associate at The Heritage Foundation. ‘You cannot address the growth in spending without addressing entitlement issues.’

”…Congressional Republicans assailed President Obama early in his tenure over soaring federal deficits, which exceeded $1 trillion dollars during his first four years in office. Debt reduction was the main focus of GOP leaders after they took back control of the House in 2010.

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