The Dispossessed

Depressed

2009-03-14T12:13:00.001-07:00

Sorry for the long hiatus after the initial fit of activity. I am unemployed , and am getting repeatedly rejected for jobs for which I am massively over-qualified...I have spent the last month staring into the middle distance and chain smoking.

However I have just given up smoking (again) and am now filled with optimism. There is a new world to be made....the revolution is at hand.

This is not a crisis of confidence

2009-02-16T11:49:00.000-08:00

One of the most prevalent, and for me most frustrating illusions about the current economic crisis is that it is all down to confidence. It has been extremely disappointing to see the hard nosed purveyors of neoliberalism suddenly retreat into pop psychology. As if somehow if we were all to close our eyes and wish hard enough we might be able to go back to 2007. What next? Replace Geithner with a Reiki master and channel the astral healing energy into our financial system.

No, this crisis has occurred because of the hard economic reality that ordinary people were struggling to make enough money to meet the essentials of life. While this may have gone unnoticed by the bankers, politicians and commentariat the facts of the ground are that the living conditions of the poorest half of our society have been declining for decades. Ask yourself who has benefited from the most recent boom? Well it certainly wasn’t ordinary people. The statistical evidence is that overwhelming beneficiaries of the boom were the smallest subsection of our society, the very richest citizens.

A pseudo-Marxist discussion of the origins of the economic crisis

2009-02-16T05:45:00.000-08:00

Warning: Very long

The purpose of this article is to provide a relatively simple discussion of how I think a Marxist might understand the emerging economic crisis. The reason that I have chosen to do this is not because I m a Marxist ideologue, and I will not pretend to be the last word in Marxist analysis. If I had to characterise my political beliefs, I think I would choose to call myself an extremely grumpy social democrat. The reason I have written this is because I think that a Marxist analysis has the potential to provide a much deeper, unifying explanation of the origins of the crisis than is to be found in the “bourgeois” media. It has the potential to try the cut through the laundry list of proximate causes which have been suggested as explanations of the crisis. I will hope to show how a Marxist analysis can provide a unifying narrative that brings together, globalisation, credit expansion and ideology and places them in a historical perspective. It may also provide some guidance to the direction of future developments. In so doing, I hope to provide a bridge between the sometimes impenetrable and othertimes hysterical writings that emanate from my comrades on the left, and the more centrist and less ideological critics of our socio-economic order.
Because this has become a quite long document: I have broken the discussion into small chunks to make it more accessible. A brief summary of the sub-sections are presented below:

1. Marx and the crimes of socialism

Sorry. However, he still has some rather important things to say.

2. The proximate “causes” of the crisis

A lot of causes have been proposed for the origin of the crisis - I do not believe they go to the heart of the matter.

3. Dialects and Gobbledygook

An over-simplistic introduction to a poorly understood tool of thought.

4. The fundamental contradiction and the laws of motion of capitalism

An explanation of the simple inconsistency that makes capitalism so wonderful and so terrible.

5. The contradiction and the current crisis

Extending the discussion from the previous section to the particulars of the current crisis.

Marx and the crimes of socialism

So twentieth century socialism was a murderous disaster, which I sincerely hope we will not repeat. However to dismiss Marx’s analysis of capitalism because of this is disingenuous, I think it would be rather like dismissing Jesus message of universal love because of the Thirty Years war. Marx made a very powerful and detailed analysis of capitalism and was motivated to do so by an acute empathy for human suffering.

It is possible to accept as correct or at least acknowledge as insightful a large part of Marx’s thought without accepting such concepts such as the “dictatorship of the proletariat”. Also, it is worth bearing in mind that at the time of his writing most of Europe was ruled by violent tyranny, and even in the United States the majority of the adult population was excluded from voting.

The proximate “causes” of the economic crisis

Excessive credit, greedy bankers, excessive complexity, a failure of regulatory oversight, corruption, derivatives, a loss of confidence and so on. Yes, all of these contributed to the timing off the onset of the economic crisis, but none of them by themselves explain the true origin of the crisis. Bankers have always been greedy and corruption is eternal. The average CDO while complicated is simpler to understand than the materials science behind a pocket calculator. Yes, regulatory oversight of our financial institutions was relaxed, and both public, private and corporate levels of leverage became extraordinarily high. The real question is why did these things occur, to understand this it is necessary to understand the dynamics of capitalism and how these dynamics have driven history.

Dialectics and gobbledygook

Part of the problem of understanding Marx is method of reasoning is unfamiliar to most people and at first sight seems deeply inconsistent. Marx took adopted Hegel’s the idea of dialectical logic, which could be described as a method of reasoning through contradiction. This method of reasoning will make frequent use of arguments that have the form “A is equal to not A”. As a result a lot of the writings of Marx and Hegel will appear to be nonsense. In the case of Hegel a lot of it was nonsense.

The most simplistic example of dialects are to be found in religious texts, for example in Revelations 1:8 we have God saying “I am Alpha and Omega, the first and the last”. By equating these complimentary opposites, a contradiction is created which then leads the mind to try and resolve the contradiction by imagining a higher order or meta-logic which will reconciles the contradiction. The contradictions in logic create motion in thought; contradictions in economics and society create change in economics and society.

So in addition to evoking a higher level of logic, dialectics can be used to describe dynamic processes, or the temporal resolution of a contradiction. For me this is where Marx stands in stark contrast to the neo-classical economists. Marx uses dialects to describe the nature of change in society and economic, where as the neo-classical economists attempt to conceive of the laws of economics as being like the laws of physics, unchanging in time. The Neo-classical economists tend to limit themselves even further, conceiving of economics in terms of the orderly approach towards an equilibrium, nothing pleases the neo-classicalisists more than finding utility maximising analytic solutions their economic models. Whereas Marx might characterise the behaviour of capitalism, to use the phraseology of modern mathematics, as a “far from equilibrium dynamical system”. It’s worth noting that Marx’s approach has made a strange reappearance in the work of George Soros. In his book “The Alchemy of Finance” Soros describes himself as a “non-Marxist dialectical materialist”. Indeed his theory of reflexivity can be thought of as a denude version of dialects.

Marx reasoned that since the overwhelming majority of human activity is directed towards acquiring the material necessities of life (food, housing, etc), the best way to understand society was to examine who did the work required to produce these necessities, and who controlled what work was done. Marx thought that by examining society in these terms he had identified a contradiction at the heart of capitalism. A contradiction that gave capitalism its enormous dynamic power, but also the potential to destroy itself.

The fundamental contradiction and the laws of motion of capitalism.

The fundamental contradiction at the heart of capitalism is between the complimentary pair of production and consumption under the condition that the tools of production (factories, fields, mines, patents...) are owned by a very small portion of society and the rest of society needs to work for this minority in order to make ends meet. To explain the contradictions in its simplest form imagine a world consisting of one monopoly company owned by one person, the only employer, that is staffed by a group of employees. The company produces all the products required by the employees and the owner (food, clothing, DVD players...) as well as the machinery of production and the raw commodities from which the products are made. The employees work, producing the products they need to live and to keep the machinery of production running, as well as harvesting/mining the raw materials, and for this they get paid their wages. The employees then spend their wages to buy the necessities and some of the luxuries of life from the company, but they will not be able to afford to buy everything that is produced. In order for the owner of the company to make a profit he will need to try and sell the products for more than the wages he has paid. However in this simple closed system there is no one else with money to buy the products, this is what Marxist term the “crisis of over-production”. This is the contradiction, and the logic of the development of capitalism is the process of trying to resolve the contradiction.

Of course the model I have outlined has reduced capitalism to its most simple elements of ownership, work, production and consumption. It is possible to confuse this model by adding different types of institution, for example separating the company into one that produces consumer products and one that produces the machinery of production, or to cut the employees in by giving them some a share of the equity in the company. In reality there are many companies, all competing and innovating, trying to minimise their expenditure on wages while at the same time persuade the employee’s of other companies to buy their products. However no matter how many different complications and additions are made to the model, unless the nature of ownership is changed, the ultimate relationship between production and consumption will be reducible to this simple model.

So the next question is what do you do with the surplus products, how do we try and reconcile this contradiction? Well there are a couple of approaches:

One is for the owner of the company to lend money to the employees to buy the surplus products. This would mean, for example, that the company prints pieces of paper (credit) which, with agreement, commits the employees to paying a portion of their future income in exchange for taking ownership of the surplus products today. This allows the employees to buy today’s surplus products (and feel rich), but is clearly only a temporary solution. By consuming today the employees reduce their capacity to consume in the future. The greater the credit expansion the greater the capacity for the owner to produce today and the greater the paper profits, but also the lower the capacity for the employees to consume in the future. Ultimately this paper credit will turn out to be worthless as owner will not be able to redeem the paper credit because the employees default (This should be starting to sound familiar).

Another option is to expand the model, either to find new consumers, or more efficient producers elsewhere in the world. This is what we have seen at the heart of globalisation an incredible period of economic growth characterised the opening up of global trade. In many ways capitalism is a wonderful thing; it has an incredible dynamism and energy to it. It has overseen the most extraordinary epoch of scientific and technological advance. It has expanded its scope to bring the greater part of humanity into is domain as producer-consumers. It should also be borne in mind that its expansion is not just geographic and material, but also social. During its expansionary phase the ideology of capitalism is not just economically liberal, but also socially liberal. Economic and social barriers are torn down to bring in as many people in to the system as producer-consumers, regardless of gender, ethnicity, religion or sexuality everyone is welcome – please by my stuff, please work in my factory. However, the process of expansion can reverse, and as we are seeing the consequences can be terrible.

The contradiction and the current crisis

So we have shown that there is a contradiction between consumption and production in a world where the means of production are owned by a very small portion of the population, and that this contradiction can be temporally resolved by two kinds of behaviour:

1. Expanding credit
2. Expanding capitalism

This is exactly what we have seen happen with extraordinary speed over the past 20-30 years. Industrial production was relocated from the high wage west to the low wage east; the consumptive capacity of the west has been supported by the expansion of credit. So the question then becomes why is the crisis hitting us now? To understand this it is important to remember that capitalism is not just an economic system, but a social, political and ideological system as well. As capitalism evolves, so do the philosophies which are used to rationalise, defend and explain it, and in turn, as the philosophies of capitalism evolve, they lead the development of actual capitalism. The current crisis is rooted in the material and ideological development of capitalism since the Second World War.

As a result of the catastrophe of the Great Depression and the necessary adoption of something like war socialism during the Second World War, the period 1945-1970 was characterised by a paternalistic, quite strongly redistributive, highly regulated form of capitalism in most developed countries. Capitalisms need to expand was supported by the post-war reconstruction of Europe. The commoditisation of the technological innovation that occurred during the Second World War drove productivity gains as well as consumer demand. Relatively high levels of union membership contributed to an increasing real wages. There was perhaps no better time to be a working citizen of a western capitalist democracy than the 1950’s-60’s. However, eventually Europe was rebuilt, corporate profits declined, and the debt financed war in Vietnam combined with the OPEC oil shock to stoke inflation globally. By the 1970’s capitalism, as viewed by the capitalists was starting to look moribund (although real wages were at all time highs). In order to restore capitalism’s to its lost levels of profitability it need to be able to expand, lever up and drive down wages. To do this a new plan was need, and that plan was called “neo-liberalism”.

The principal of neo-liberal economics should be familiar to most readers, they have been political orthodoxy for nearly a quarter of a century. The principals could be summarised as: deregulation, privatisation, removal of trade barriers, and reduction in taxation. Some people might include fiscal discipline on this list, but given the explosion of the government deficit under Regan, it would be more accurate to say a reduction in social spending.

The real turning point for modern capitalism was the political victory of the neo-liberals in the English speaking world, most notably Regan and Thatcher, but it would be a mistake just to associate it with the “right wing” political parties. In Australia and New Zealand neo-liberal economic and social policies were introduced by the former social democratic parties, particularly Hawke/Keating and Lange/Douglas. These policies became the new consensus among the political and business elites, and changing the governing political party in fact changed very little. The degree of economic ideological consistency running through Regan-Bush-Clinton-Bush-Obama is quite remarkable, and as the joke went in the UK “Tony Blair MP” was an anagram of “I’m Tory Plan B”.

The privatisation of previously state owned businesses expanded the scope of for private profit. Deregulation allowed for the interconnection, consolidation and expansion of the financial sector. The lowering of taxes and reduction of social spending/welfare reform increased completion for low wage jobs. As a result of these reforms capitalism went into overdrive. Corporate profits started to recover, the stock market boomed. Free trade led to the extraordinarily rapid industrialisation of the third world, pushing down production cost, which increased profits. The increased profits were recycled through the financial system and lent back to the citizens of the first world, which in turn drove consumption, which drove production, which drove globalisation, which in turn increased profits. An apparently magical formula for an economic perpetual motion machine. Except of course that credit expansion cannot go on forever, the contradiction between production and consumption cannot be postponed indefinitely. Ultimately it will become apparent that what has been borrowed cannot be repaid. With the subprime lending practices the giant Ponzi scheme that was global capitalism hit rock bottom. The future earnings of the workers of the first world had been spent. The virtuous cycle went into reverse.

The expansion of productive capacity over the past two decades has been extraordinary. Some of the more hopeful of us might imagine that this capacity could be turned towards the reduction of world poverty, but instead the terrible truth is that the productive capacity instead of making us richer will make us poorer. The factory storerooms and ports of Asia are congested with consumer products for which there are no conceivable buyers. Both east and west productive capacity is being destroyed, and with the destruction go the jobs, and with the jobs goes the consumptive capacity. With every passing day thousands, hundreds of thousands of people are having their livelihoods and lives destroyed. With every passing day the crisis feeds back on itself and deepens.

Regulars in the blogosphere will know that everyday there is a new plan to rescue capitalism. The most popular proposals that we are hearing from our political leaders are to try and treat the symptom of credit expansion with further credit expansion, to push the crisis of overproduction further into the future. Quantitative easing, tax cuts, infrastructure spending, they are all variants of the same plan. Ultimately the plan is to turn private debt into public debt. Perhaps they will succeed for a while, I don’t know, the magnitude of the current crisis seems so extraordinary that there are good reasons to think that private bankruptcy will be followed by public bankruptcy.

The events of the past year have for me been an interesting study in dialectics, the transformation of one thing into its opposite in preparation for its transcendence. Previously the neoliberal sin of government interference in the economy has become pragmatic necessity. As each sector of the economy is thrown into crisis the governments are called in to support it. First banks, then car makers, airlines and insurers on and on it will go. With some irony I am now able to recast Hayek and declare we now have creeping state capitalism. We are witnessing capitalism inverting itself, the contradictions that lie at the heart of capitalism have driven it to become the thing that it most abhorred. Of course not everything has changed, the same elites remain in charge.

The terrible truth is the only historically proven method of coping with crisis of over-production of this magnitude is war. I have been trying to keep this article relatively ideologically and rhetorically benign and so I am going to leave aside the issue of capitalism and war for another time, except to say that it is “the love that dare not speak its name”.

There is so much more to write, however I need to bring this article to an end, but before I do there is one more issue I want to address. As the crisis deepens many people are trying to find individual, personal solutions, this might be called the: guns, gold and tinned food solution. The idea that you can protect yourself and your family while the rest of the world falls to pieces. I believe this is the height of utopianism and is a very dangerous trend. Rather than acknowledging the commonality of our suffering and working together to make sure weak, the young, the elderly and the misfortunate are looked after, we risk shattering our societies into billion atoms of humanity. Do not forget; you are your brother’s keeper.

Coming Soonish

2009-02-12T04:28:00.000-08:00

So the blog is only a day old, so to reassure you that there is more to come, here are some synopses of some planned future blogs

The strange revival of Marx

So it has become fashionable to start quoting Marx again. However most of the commentary has little more than the cherry picking of quotes with almost no analysis.

The labour theory of value? No

Declining rates of profit? No, yes. I'm not even sure I know what that means

The contradiction between production and consumption? Well maybe

The real genius of Marx was that despite writing 150 years ago and being almost entirely wrong in his major predictions he had greater insights into the working of modern capitalism than 40 years of Nobel prize winning economists combined

The madness of the Austrians

Unusually for a committed leftist I am a huge fan of von Mises. I believe von Mises "Socialism" should considered compulsory reading for leftists hoping to avoid repeating the disasters of the 20th centaury

That being said there are few intellectual factions with a higher concentration of religiously ideological nutcases than the followers of von Mises and Hayek

Obama: Continuity you can despair of ?

Well we were hoping for FDR, but it seems that we will be getting Carter instead. The stimulus package was a farce, the new bank bailout suggests that the looters are still running the show.

Now is not the time to try and compromise with the criminal Republicans. Now is the time to purge

I won’t give up hope yet

Good Bank, Bad Bank, No Bank, My Bank

As a teenage utopian socialist I used to dream of the nationalisation of the banks. Well it is likely that the nationalisation of the developed world’s banking system should be complete by the end of 2009. However the extraordinary timidity of the political classes means that we will probably have little direct control over the activities of the banks.

Over the coming decade there is a great deal to be done...we need to be able to guarantee basic necessities of food, water, sewerage, healthcare, education and work to the general population in this new age of austerity. We need to rebuild public infrastructure for transport and energy, phase out private cars, rebuild local agriculture.... and on and on

This will not be possible without substantial control of the system of production and distribution of credit. Through the nationalisation of the banks the first steps towards the transformation of our society are being forced upon our reactionary political and economic leadership. Next we need a new leadership that is prepared to move from nationalisation to socialisation.

Rationing for beginners

There are basically two models of rationing scarce resources

Price rationing – the market
Bureaucratic rationing – the command economy

Advocates of each denounce the other as having failed. The disaster of the Soviet Union provides powerful arguments against the command economy. The dramatic fall in the price of oil and the ensuing collapse in investment in alternative energy projects suggests a civilisation jeopardising misallocation of capital by the market.

However perhaps a new model is possible. A new capital structure of society?

The invention of the internet raises the possibility of new methods of preference aggregation that ameliorate the worst failings of both bureaucratic and price rationing

Lets hope

Optimism of the will

2009-02-12T01:09:00.000-08:00

“I'm a pessimist because of intelligence, but an optimist because of will” – attributed to Gramsci

So the outlook seems quite dark, to summarise the situation:

The oil seems to be running out
Climate change is increasingly looking out of control
We are on the cusp of what could be the greatest economic crisis since the black death of the 14th century

Well what cause for optimism then?

Our society and economy based on consumption had to change, and now change is being forced upon us. The only solutions being proposed by our political and economic leaders are attempts to press restart on an unsustainable socio-economic order. These solutions will fail for exactly the same reasons that lead us into this crisis in the first place. As the bankruptcy of the elites ideology becomes apparent the failure of leadership will unleash a whirlwind of economic and social chaos.

However despite the bleakness of the outlook I will determinedly be an optimist. The economic crisis stands as final refutation of a doomed system and an opportunity to re-imagine and then rebuild our world. No matter how dark the world becomes we must not let events drive us to despair. Dare to dream of a better world.

Utopianism is the new pragmatism, and the pragmatism of our leaders nothing more than self delusional utopianism.

The yin and yang of economic ideology

2009-02-11T17:28:00.000-08:00

The fact that capitalism exhibits a boom-bust cycle is undeniable, but what is now becoming clear is that economic ideology also follows the waxing and waning of the boom-bust cycle. The great debate between the advocates of the unlimited market and those arguing for fiscal stewardship of the economy has taken another turn.

It was not so long ago that Keynesianism what thought to have been refuted by inflationary outbreak of the 1970’s. Instead neoliberalism and counter-cyclical monetary policy was to be the panacea for the economic cycle.

However now it seems that neoliberalism was not the cure but the cause of the most recent crisis, and counter-cyclical fiscal policy is the new solution. How long will it be before sovereign bankruptcy and perhaps the return of inflation are used to argue against neo-Keynesianism?

The great debate we are witnessing now between the neo-liberals and the neo-Keynesians is merely the ideological epiphenomena of an economic system lurching from crisis to crisis.

Two sides of the same coin.

Would you prefer the frying pan or the fire?

The definition of reactionary

2009-02-11T16:31:00.000-08:00

Lets us imagine for a moment that we had a crisis characterised by:

Exhaustion of the physical environment as a result of unrestrained consumption
An economic crisis that is heading towards universal insolvency caused by excessive debt

The obvious solution (?!) then is to:

Promote more consumption
By promoting further borrowing

Are we hearing any other proposed solutions from our political and financial leaders?