GOSPLAN COMES TO THE US
Frank Lee
During the early years of the Thatcher regime, Conservative MP, Sir Ian Gilmour, served as a member of the new Conservative government elected to power in 1979. Politically and socially he had little in common with the neo-Poujadist Mrs T and her band of neoliberal counter-revolutionaries, a rampaging mob of enragés led in the main by neo-liberal head-banger, Sir Keith Joseph.
Gilmour himself came from an aristocratic, high-Tory background, and viewed the new order led by a provincial grocer’s daughter (the archetypal petit-bourgeois) together with her crackpot policies, with barely hidden contempt. A break had to come and did so in short order.
This parting of the ways was precipitated by concern at the all too visible adverse trends in the economy; the rising figures for unemployment in particular, was a damaging side-effect to the new government’s economic credibility. Something had to be done.
Thus, the formulation of such damaging statistics was to be overcome by simply changing the definition. Mirabile dictu, it worked, and, hey presto, unemployment fell.
This prompted Gilmour to sarcastically remark: ‘Now that the government has reduced the unemployment figures perhaps a start can be made to reduce unemployment.’ That was the end of Gilmour’s stint in government.
I recalled this particular piece of historical revisionism in order to illustrate a more general point: namely that we can take it as read that official statistics are very carefully compiled and rigged for political reasons in order to produce political outcomes. They are designed to show what a good job our rulers are doing; making us richer, happier and contended. And this was never just about western capitalism. It has been commonly practised by all state bureaucracies.
The statist-bureaucratic economic model in the USSR and its satellites also wrestled with internal structural problems which became eventually intractable. It was not just a problem of corrupt party officials and/or megalomaniacs like Stalin and Ceaucescu which led to the final demise of the system, although they certainly played a part.
No, the problem with communism, and in time with capitalism for that matter, is that ultimately the structural anomalies internal to the system gave rise to a gradual economic stagnation and inertia: the paradigm was to become unsustainable and unable to carry on any further. The crisis was, in short, systemic.
In this respect, capitalism follows the lead of communism as is evidenced through the current ongoing crisis, a crisis which began in 2008. How and when this will play out is a matter of conjecture, but we can be sure that it will play out.
Many within the Eastern bloc had come to this conclusion as early as 1960. A confidential report in 1965 from a senior Soviet economist highlighted slowing rates of growth, particularly in agriculture, and in manufacturing, poor quality goods and the most backward industry in the developed world. In addition, there was also mass wastage in production ranging from timber to steel.
The report was ignored, and the problems continued to worsen until the Brezhnev years which added a wage levelling process which tended to undermine individual incentive, resulting in absenteeism and alienation in the workplace. By 1980 the situation had become critical. Gorbachov’s Perestroika and Glasnost reforms were too little too late since the system was arguably beyond reform.
The Soviet Union and the other command economies stagnated and collapsed due to the absence of any reliable method of resource allocation and quality control. The absence of the market mechanism in this respect left production and allocation decisions dependent on the subjective judgements of the planners.
This resulted in a misallocation of resources on a gigantic scale as well as the production of inferior quality goods.
I remember at the time (1981) being in Moscow and visiting the famous department store – Gum. It occurred to me as I walked around that in England at Bentall’s, a large super-store in Kingston-upon-Thames, where I was working at the time, had a much wider range of goods of much higher quality.
In the state-bureaucratic regimes in Eastern Europe there was overproduction of some goods and scarcity of others. There was waste, poor investment decisions, ecological damage as well as corruption, time-serving and mediocre management.
However, the collapse of the command economies in Eastern Europe did not herald the beginning of any capitalist nirvana – quite the contrary. If anything, the post-communist societies all experienced a catastrophic fall in production and living standards.
Some have now recovered – including most importantly Russia – but many are still worse off than before the fall of communism, and grappling with a serious problem of falling fertility rates, rising death rates and depopulation as a mass migration is taking effect from East to West – many are nostalgic for the old days of communist rule.
The move from the command economy to the most extreme form of capitalism was, in fact, a jump out of the frying pan into the fire.
Now comes the turn of the West and its neo-liberal system. We can posit the view with some confidence that the western neoliberal system is headed for a fundamental structural breakdown. Not just a recession, or even a depression but a complete breakdown.
Increasingly frenzied attempts to cope with this deteriorating situation and keep the truth from everyday folk is becoming increasingly difficult, though actually imperative. Ergo the mass propaganda machine working day and night in an effort to distract and reassure the populations that everything is fine.
In this respect economic statistics have undergone a revolution in recent years (see above). In many ways this is very similar to the experience of the Soviet bloc in its final years.
Taking the United States as the leading neo-liberal economy as an example, let’s start with unemployment
UNEMPLOYMENT
There are no less than six definitions of unemployment in the US (See US Bureau of Labor Statistics: U1-U6.) The headline and widely used figure is usually based upon U3. This calculates the present levels of unemployment as being 3.8% or thereabouts. However, if the U6 measure is used the level of unemployment rises to 7%.
Trump himself used to complain about just this issue. Bashing the official unemployment statistics was one of his bigger campaign trail themes. Back in June 2015, he made this remark about the official unemployment rate (which was then 5.5%): “Our labor participation rate was the worst since 1978…. Our real unemployment is anywhere from 18 to 20%. Don’t believe the 5.6% Don’t believe it.
That’s right. A lot of people out there can’t get jobs.” And in May 2016: ”You hear a 5% unemployment rate. It’s such a phony number. That number was put in for presidents and for politicians so that they look good to the people.” (Don’t you just love that side swipe at Obama!) A month after his victory in the US presidential elections, he was still sticking to his guns: “The unemployment number, as you know, is totally fiction.”
Given this history Trump should have known better than to tout the latest unemployment numbers. To understand the problem, it helps to explain how the US government measures the health of its workforce.
The official labor force is made up of two types of people—those with jobs, obviously, but also the “unemployed,” defined as those ready to work who have actively looked for a job in the last four weeks. The unemployment rate captures the number of unemployed people as a share of the labor force. But it doesn’t tell you anything about people who stopped looking for work a month ago or more. This group has effectively exited the labor force.
So, when the unemployment rate is falling, it could be for two reasons (or, more likely a combination of both). More people could be getting hired. Or more people might be giving up on trying to find work.
When politicians, pundits, and the press hail a low, steadily declining unemployment rate, they’re assuming that the first phenomenon—formerly unemployed people finding jobs—is driving that decline. But it has been pointed out that if employers were actually on a hiring spree, we might expect a steady, sharp rise in the ranks of people working or actively looking for work, relative to the numbers of those who have left the labor force altogether.
“If the jobs market was truly a strong one currently, there would be a clear rush of those not in the labor force to join it,” he says. “Those millions right now outside the official numbers would be moving back into them if they were given a legitimate shot at fruitful employment.”
That’s clearly not happening. Despite the rumoured labour shortage that the media’s been hyping, the share of working-age Americans who have jobs or are trying to get them continues to slip.
The labor force participation rate — the share of the civilian population ages 16 and older that is working or looking for work has continued to decline. Now only 62.7% of people in that group have jobs or are actively trying to find one. (That’s about the same as in the late 1970s, before women joined the workforce en masse.)
That’s not just because America’s workforce is getting older. Despite this being the longest US economic expansion on record, a smaller share of workers aged 20 to 54 are currently in the workforce than when the last recession began, in Dec. 2007.
Another sign of slack in labor market comes from wages. If hiring is getting harder, as the ultra-low unemployment rate implies, then employers should have to pay higher wages to attract candidates. But since late 2016, the pace of wage growth has flattened, as Dean Baker, head economist at the Centre for Economic and Policy Research, flags.
If these (pace Nikolai Gogol) ‘dead souls’ are included, then the actual unemployment rate in the US is a lot higher than the official figures would suggest. In this way vast swathes of the unemployed have been simply disappeared off the official statistics by definitional fiat. It is a fact that US unemployment is falling not because of the creation of new jobs, but due to workers dropping out of the labour market.
It’s not clear why American adults are dropping out of the workforce, but it suggests social and economic ruptures of an alarming scale. Even more alarming still is the fact that those with power and influence still deny the problem, exalting 3.8% unemployment as proof that regular Americans are doing just.
In addition, there comes the curious conundrum of falling unemployment concurrent with falling employment. Below is the (downward) trajectory of US unemployment. How is it possible to reconcile static employment growth with declining unemployment? If unemployment is falling, then it follows that employment is rising. But employment growth has been static for the last 10 years. And has bumped along the floor of that figure ever since.
Unemployment as % of Labor Force
Surely if unemployment is falling employment must be rising and vice-versa; a bit like a see-saw, when one end goes up the other goes down – right!?
Employment as % of Labor Force
An exercise in squaring the circle perhaps.[2]
INFLATION
The CPI chart on the home page reflects our estimate of inflation for today as if it were calculated the same way it was in 1990. Prior to this the Consumer Price Index (CPI) on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980.
In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.”
As of 10 October 2019 – the official inflation rate is 2-1/2% but according to Williams’ figures it is nearer to 10% – this time using the 1990 based criteria. [3]
The US authorities are always on the lookout for some latest wheeze to massage down the inflation figures. These would include:
The substitution effect: Expensive items in the ‘typical’ [4] basket of goods purchased by households by cheaper goods should these become available. Thus, expensive white meat such as chicken would be replaced by pork which is less expensive. Result: a downward deflationary effect.
Omission: Certain everyday items are simply not included in the CPI. Both fuel and food costs – both big items in American household expenditure are apparently not regarded as being relevant.
Shrinkflation: the price of many goods may remain the same, but the quantity may well decline. A packet of peanuts may cost $1 for 300 grams one week only to drop to 275 grams the next. It is assumed, with some certainty, that the consumers won’t check the price on the back of the packet.
Hedonic pricing: Let us suppose that a car cost $10000.00 in one year. Next year the same model with some additional features costs the same $10000.00. Since the good has undergone some upgrading this should mean – according to the orthodox theory – that the cost of this year’s car has fallen and therefore has had a deflationary impact. Now the cost has according to government figures fallen to $8000.00. This somewhat Jesuitical reasoning fails to convince since the actual price remains at $10000.00
Cost of Living Index: Inflation is a macro measure of a general level of national price rises in any given time period. However, at the micro-level inflation will be different in terms of the income level variables in wage levels in different parts of the country. Inflation levels are high or low given variation in income levels.
Asset price Inflation: Low/negative interest rates has involved the transfer of savers monies to speculators. This cash has been used by banks and corporations for leveraged stock buy-backs, bonds, property and M&A, all of which have been highly inflationary. Asset price inflation is not growth.
But one characteristic at least seems fixed – every time a new definition is used the inflation figures go down. As with unemployment, inflation is whisked away by changes in definition. It is not beyond the wit of these people to change the definition to exclude all items which rise in price.
We move on.
GROSS DOMESTIC PRODUCT (GDP)
Gross Domestic Product (GDP) also known as National Income (Y) is usually calculated by either the output, expenditure or income method. The output method is generally preferred. This is designated as Output and Real Output.
Output is adjusted to become ‘Real output’ by what is called the GDP deflator. This deflator is used to purge inflation out of the statistical calculations and bring about Real Output from Raw Output. But here is where it gets a little bit tricky. As we have seen above if the inflation figures are understated – which they are – then it follows that Real Output or GDP will be overstated.
Moreover, the notion of ‘growth’ as measured annually or quarterly is a little problematic on the downward side. The production of wealth as value depends on the creation of value embodied in goods and services.
Economic rent, as captured in rent from land, monopolistic pricing, share buy-backs and various objects of speculation, property for example, do not produce value, yet they are factored into GDP as growth. Only the real value-creating economic activities should be counted as growth.
It is interesting to note that during an inflationary property boom when house prices are surging ahead buyers think that they have become richer overnight. But when the cyclical downturn arrives – as the inevitable market correction – they cannot understand where all their previously acquired wealth went.
It never dawns on them that this ‘wealth’ was never there in the first place.
As Marx correctly pointed out, their earnings from the property bubble were merely notional – fictitious capital which arrives and then departs in a pure will’o’the wisp paper exercise. (See below. Smart money usually wins, dumb money usually loses).
Such is the timeless nature of bubble dramas. It’s always has been like this, always will be, talk of ‘new paradigms’ notwithstanding.
However, this fattening up of ‘real’ GDP by pumping up asset-price inflation and counting it as ‘growth’ still isn’t enough to prevent the emergence of diminishing marginal returns where every input produces a smaller output.
The US debt-to-GDP ratio at 106% is now headed into areas which have only been experienced in the past by war. But of course, we should be grateful for Paul Krugman house economist of the New York Times who assures us that ‘debt is only money that we owe to ourselves’.
I must confess to a slight problem about the identity of who the ‘we’ and who the ‘ourselves’ might be. “We” are of course the indebted, and “ourselves” the creditors.
A better description would be debt is the money that ‘we’ owe to ‘them.’
Of course, unpayable debt should be written down, or at least restructured, but no way would the creditors stand for this. So, the Minsky moment arrives: more debt is taken out to pay already existing debt. If this sounds like a Ponzi scheme, that’s because it is one.
BOND MARKETS
We are now seeing some very strange phenomena in the Bond markets. The yield curve on long-term US Treasurys is inverted; that is to say the long-term yield rates are paying less than short-term.
Normally the longer the life of the Bond the higher the coupon or interest rates. This is no longer the case. It seems to be demonstrating the nervousness of investors.
See below where 2-year short-term and long-term bonds are converging. This indicator looks solely at the relationship between the 3-month and 10-year Treasury yields; when the former rises above the latter, it has been a reliable recession predictor over the past 50 years.
If it is any consolation the 10-year Treasurys are leading the pack of international markets with a paltry 1.78% nominal yield. Unfortunately, inflation in the US – which as we have seen is massively understated – is running at 1.7% so that the real yield is 0.08%.
The situation in Europe is even worse with yields at miniscule positive levels, actually zero, or more often nominally negative. Yields below (not adjusted for inflation).
UK = 0.74%
Germany = -0.36%
France = -0.06%
Japan = -0.13%
Spain = 0.27%
Italy = 1.06% [5]
Well, if you feel lucky you can always try Ukrainian Bonds at a 16% yield. Mr Kolomoisky will no doubt be grateful for the largesse. Of course, you might not get your money back, but,
What you gotta ask yourself is do I feel lucky today …. Well do ya -punk!”[6]
One is reminded of Gramsci’s observation: viz., ‘’The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum, a great variety of morbid symptoms appear.’’ [7]
Yep, these morbid symptoms seem to be here in abundance. None more so than spare capacity in the US economy, long-run and short-run. Figures below.
Peak capacity utilization – Long-run average:
- 1970-1980 = 87%
- 1980-1990 = 85%
- 1990-2000 = 85%
- 2000-2010 = 80%
- 2010-2019 = 78%
Below October 2018-2019 – Short-run
Allowing for short term troughs and peaks, there is a clearly discernible long-term decline in capacity utilization which is a function of declining profitability and investment in the value-creating sector, and which gives rise to economic financialization whereby the rent-seeking, monied class maintain their wealth.
This is a period of increasing economic stagnation and a long-run cyclical period of sub-par growth. Moreover, the figures would suggest cycles within cycles. These may range from relatively short-run inventory cycles, to full-blown Kondratiev long waves.[8] But this is quite normal.
The general economic crisis which was unleashed across the world in 2008 is a Great Depression. It was triggered by a financial crisis in the US but that was not its cause. The crisis is an absolute phase of a long-standing recurrent pattern of capitalist accumulation in which long booms eventually give way to long downturns.” [9]
CONCLUSIONS
The political overspill of these economic developments has been increasingly visible. This is clearly instanced in the widening gulf between on the one hand the subaltern classes and on the other by the ruling elite together with its underpinning coalition of political, media and ideological sub-strata situated in the command posts throughout the dominant institutions of the New World Order.
How far this cleavage between rulers and ruled can continue without serious social and political tensions is moot. But given the present momentum and direction of the neo-liberal system, in tow with its political twin, neo-conservatism, such tensions are bound to be exacerbated to the point of economic and political breakdown.
Which brings us back to the opening point of this article: the manipulation of statistics, the development of mass propaganda, and, with due respect to Herman and Chomsky, the manufacturing of consent. Modern propaganda methods and ideology are extremely powerful and sophisticated; however, they are not all-powerful; resistance is possible and increasingly making itself heard.
More and more men/women in the street are able to see that the King has no clothes. Political and social upheaval whatever the form it takes, seems unavoidable.
I will leave the final words with Wolfgang Streeck, and bear in mind that this was written in 2011. If anything, the crisis has deepened since he wrote this:
The political expectations that democratic states are now facing from their new principles may be impossible to meet. International markets and institutions require that not just governments but also citizens credibly commit themselves to fiscal consolidation (austerity).
Political parties that oppose this must be resoundingly defeated in national elections, and both government and opposition must be publicly pledged to ‘sound finance’, or else the cost of debt service will rise.
Elections in which voters have no effective choice, however, may be perceived by them as inauthentic, which may cause all sorts of political disorder, from declining turnout to a rise of populist parties to riots in the streets.” [10]
La Lotta Continua
NOTES:-
[1] Gosplan. The State Planning Committee was the agency responsible for central economic planning in the Soviet Union. Established in 1921 and remaining in existence until the dissolution of the Soviet Union in 1991, Gosplan had as its main task the creation and administration of a series of five-year plans governing the economy of the USSR.
[2]The US Bureau of Labor Statistics. Labor Force Participation Rates.
[3]John Williams – Shadow Economic Statistics.
[4]Of course, a ‘typical’ anything is impossible to define outside of being a purely theoretical concept. What for example does a typical triangle look like?
[5]countryeconomy.com – Government 10-year Bonds.
[6]Film – Dirty Harry – starring Clint Eastwood.
[7]Antonio Gramsci – The Prison Notebooks.
[8]Kondratiev waves also called Supercycles, surges, long waves or K-waves are described as regular, sinusoidal-like cycles in the modern (capitalist) world economy. Averaging fifty and ranging from approximately forty to sixty years in length, the cycles consist of alternating periods between high sectoral growth and periods of relatively slow growth.
Nikolai Kondratieff (Kondratiev), a Russian economist was the first to suggest that industrial economies followed a cycle of change in prices and production. Actually, this cycle is a cycle of liquidity and not price. But rising and declining trends for money, labor and products are an effect of the cycle.
Kondratieff Cycle averaged 54 years in duration, however cyclic periods can expand and contract and are therefore inherently unreliable for precise timing. But the sequence of events in the Kondratieff Wave may be an immutable social process regardless of how many decades it takes it to play out. The presence of a credit inflating mechanism causes extreme booms and busts during the cycle.
As liquidity expands in the initial phase of the cycle, commodity prices rise reflecting the increasing business activity and inflation. As business activity and inflation accelerate, speculators bid up commodity prices due to their fear that inflation will continue to accelerate. After the rate of inflation peaks and starts to fall, the acceleration premium is removed from prices. Thus, commodity prices start to fall despite continued but slowing inflation, a trend called disinflation.
At the same time, a change in psychology away from fear and toward feelings of relief and hope induces people to channel the excess purchasing media created during disinflation into bidding up the prices of investment assets such as stocks. Because inflation continues, the wholesale prices that manufacturers charge for finished products, the retail prices that stores charge for goods and the levels of wages that employers pay for labor all continue to rise but at a continuously lesser rate, following the rising but slowing trend of business activity and inflation.
Near the end of the cycle, the rates of change in business activity and inflation flip to zero. When they fall below zero, deflation is in force. As liquidity contracts, commodity prices fall more rapidly, and prices for stocks, wages and wholesale and retail goods join in the decline. When deflation ends and prices reach bottom, the cycle begins again
Fn. Kondratiev along with another outstanding Soviet economist Isaac Ilyich Rubin were both ‘liquidated’ – in Stalinist terminology – in the late 1930s.
[9]Anwar Shaikh – New Findings in Long-Wave Research 1992
[10] Wolfgang Streeck – New Left Review 71, September-October 2011
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Totally missing the third and biggest growing kid on the block: China. Deng and Xi’s mix of state capitalism under full one party grip had an enormous effect on the world economy / balance of power.
Its is neither capitalism or communism but it is certainly totalitarian, economically imperialistic and 100% materialistic.
The Western 1% happily joined for personal profits with this China while leaving their ancestry lands void of industry in the process: gone to the tax heavens of the Caribbean etc. being the globalists (=Egoists).
While the USSR system was bad more from the security and personal freedom point of view, may I just say, I walk through markets and ‘superstores’ here in Thailand, and see piles of clothes, and other goods which will never be sold. Capitalism is as wasteful if not more so, than the old communist system.
Cap. requires continual ‘growth’, and production, to justify its existence. Whether there is a market for what you produce seems irrelevant. As guys like Max Keiser show, what we have is not real capitalism- The banks and corporates fix the system for themselves, at our expense.
Also, the space and arms industries in the USSR were pretty good, so the emphasis was in the wrong area. Education was pretty good too…
Great bit of material. Further illustration of the notion that “there are lies, damned lies and statistics”. I think its important to note that the command economy wasn’t a core tenet of Marxism, it just happened that the rise of Marxism coincided with the rise of Taylorism or ‘scientific management’. The new Russian government was anxious to try state of the art management and bouyed by an excess of idealism and a complete lack of experience they plunged the country into a series of economic disasters. The fundamental problems were well understood by the 1980s and the USSR was trying to dig itself out of the mess when “the Wall fell” ….. and the rest was history. The problem for the West — for capitalism — is that Taylorism isn’t ideologically wedded to communism, its fundamentally a discipline for making business more efficient. Its also purpose built for businesses that… Read more »
Heads up Admin,
Sites been steady for days but has started checking browser again…
No worries, D, the browser check is being run by us as protection. We’ve been getting brute force attacks trying to hack the site login, so we’re taking precautions.
Again? The bastards just don’t give up. Complete fascistic behaviour. I was wondering the same as Dungroanin. Keep the wolves at bay guys.
Frank Lee said: The statist-bureaucratic economic model in the USSR and its satellites also wrestled with internal structural problems which became eventually intractable. It was not just a problem of corrupt party officials and/or megalomaniacs like Stalin and Ceaucescu which led to the final demise of the system, although they certainly played a part. Margaret Thatcher and many other western leaders feted Nicolae Ceausescu. The Queen even gave him a Knighthood. This was because although Romania was a communist country, Ceausescu hated the Soviet Union and so became a favourite of the West. One British politician, David Steel, gave a black labrador puppy to Ceausescu as a gift. Ceausescu named the puppy Corbu and loved it so much that he made it a colonel in the Romanian Army. The dog could often be seen being driven around Bucharest in its own limousine, complete with motorcade. Corbu lacked for nothing. The… Read more »
By the way, I looked up what I said above after I made the post, and most of it has now gone down the memory hole (it’s not even on the Way Back Machine anymore, which is yet another entity that’s been taken over by the completely criminal security services). By way of veracity, this is still online at the time of writing: On the count of elevating an animal to a high rank: guilty. It turns out Ceausescu was popular in the West for being staunchly anti-Soviet, and was given many gifts by visiting (or visited) dignitaries. Perhaps most embarrassing was an honorary knighthood bestowed by the Queen of England, revoked only hours before his execution when the appalling nature of his regime became apparent. Among the other gifts was a black Labrador puppy from British Liberal Party leader David Steel. Ceausescu named the dog Corbu and became so… Read more »
You say: “We can posit the view with some confidence that the western neoliberal system is headed for a fundamental structural breakdown.” I say: “The sooner, the better”.
A tour de force, Frank. There is only one economist left in town. No, not Krugman: Hyman Minsky and his financial instability model. Debts matter. Not by size: but by debt service cost. And who pays the debt service cost? We do: if you wonder where 40 years of wage growth has gone …to finance aggregate deficits on debt. Steve Keen – who uses Minsky’s model and data-set – has shown that wages are a simple residual of: Output (nominal GDP) – Profits – Debt Service Costs. Whats left – if anything – is wages …or permanent austerity with exponentially rising debt. And Michael Hudson has shown that debts rise exponentially: whilst economies grow more leisurely …following an S-Curve distribution. As has been known since Ancient Sumer in the Bronze Age – exponential debts that must be paid destroy civilisations …without any other hidden variable factors being involved. Just debt… Read more »
Sorry for the double post.
(Bit awkward, it would be nice to be able to edit posts.) When I moved to the US I learned all sorts of words that I never knew existed (and that was as a native English speaker). One word used by a realtor was ‘performing’ and it was in regard to a loan or mortgage. Up to that point I’d never given loans a second thought — they were just necessary evils you had to get occasionally and then pay it back. The word ‘performing’ opened my eyes to the lender’s view, the idea that it was a way of getting money to work because if money wasn’t ‘performing’ then it was essentially useless, just meaningless figures and paper. I’ve avoided the debt culture that’s taken for granted in the US, the idea that ‘everyone has loans and its part of your financial picture’, because I think of it as… Read more »
Thoroughly researched and simply presented study on the failure of monopoly. The answer to it has always been simple – stop monopolies. The answer to bad debt has also always been as simple – write it off and let the lenders make the most of their security on their lending – if none – tough. Collapse. The answer to a Great Recession was proved in the most ‘capitalist’ country to be a communist ‘new deal’. Economics is not a rigorous science – counting things is. Statistics and accountancy can and are subjective and creative methods for hiding the ‘counting’. The bankers and ancient City know all this they always get ‘richer’ and more powerful through the rinse and repeat cycle. They plan decades ahead. They set up dynasties through arranged marriages and ensuing children. Yup the same old system of blood being thicker. Very occasionally the rest of us get… Read more »
Haven’t read it all yet – but will come back to do so. Medical and scientific stats are no less handy for operating political agenda by stealth. Beware the Trojan Horse to our own beliefs. Parameters can be invented and then later changed – after first establishing a narrative belief – that then takes on a ‘life of its own’ as a conditioned and controllable proxy or asset. Workability is a keystone to a true sustainability – whereas persistent and diversionary short term fixes make an addict of craven deceits. And established models or narratives then demand sacrifice of the living to gods that must not be questioned. Growth is a rhythmed being, with periods of expansion and compression. Our consciousness grows through a process of expression and reflection. Closed system thinking sets the limit to growth. The key is what is grown and why. GDP is a meaningless figure… Read more »
Fabulous article from Frank Lee! If there’s anyone out there who still believes the official statistics, this could serve as a solid primer on real economics. I can also heartily recommend John Williams’ website, ShadowStats (cited above), and also the blog of Paul Craig Roberts. These are two ‘outlaw’ economists who know their business! And so is Frank Lee.
What astonishes me is that so many people are prepared to deny the reality of their own experience, or are at least prepared to support political figures (and media outlets who back them) who work tirelessly to maintain certain illusions. So, for example, one of the more bizarre forms of logic one frequently encounters in forums like BTL at the Guardian is that any alternative would be even worse: an assertion that can only be reached because of a combination of relentless fear mongering, allied to endless lies told by the establishment. In broad terms it feels like recent social and economic gains are being clawed back so they might be diverted to the small elite that are the only beneficiaries of this crumbling system. The reality is bleak – despite significant wealth and technological advances; Half of 20 somethings in the UK have no savings, Wage stagnation is now… Read more »
I have come to feel that the various scape goats and hate figures the media cooks up are so patently NOT to blame that the blaming of them is a kind of mass rote hypnosis thing which is more to do with people’s speech than their thought i.e. there is a split between what people privately think and what they publicly say i.e. the media provides channels for venting anger which are generally accepted e.g. you can rant against immigrants, the “nanny state”, social security scroungers etc. I’ve even heard those who always claim to be on the left, firing off at Corbyn. But if you start to complain about capitalism or Deep State machinations then you tend to get a wide berth. It’s considered “bad form”.
I don’t think reasoned belief comes into it and the attempt to make sense of others as if that is our common sense or mode of making sense, misses the point. “…the true object of propaganda is neither to convince nor even to persuade, but to produce a uniform pattern of public utterance in which the first trace of unorthodox thought immediately reveals itself as a jarring dissonance.” ~ Alan Bullock People are being conditioned to unworthiness across a broad spectrum as their interface with almost everything. The overall sense is an impotence that itself is of no practical use – and so adjustments of adapting to the new normal, sacrifice more for less as the degrading and denial of life to an increasingly unliveable condition. So in effect, being pushed off the Planet by making life unworkable. Technologism has been coopted by corporate cartels and a private public-capture. Science… Read more »
“the true object of propaganda is neither to convince nor even to persuade, but to produce a uniform pattern of public utterance in which the first trace of unorthodox thought immediately reveals itself as a jarring dissonance” – if you are a nobody, like me, then you just get ridiculed or treated with contempt – on the other hand, if you are a progressive with a public profile, then the Permanent State goons will go for you, hell for leather, and you will be demonised, persecuted and jailed – if not done away with completely. The likes of Julian Assange, Aaron Mate and Max Blumenthal can be considered here. The neoliberal figureheads, masquerading as democratically elected officials, are for the most part, no more than sock-puppets of the invisibles who are the architects of misery for mankind. However, the curtain has now been drawn back on the Deep State and… Read more »
I see an energetic component here rather than a moral judgement. Integrity is not earned but integral to the honesty of its alignment. Loss of integrity is a realm of shame fighting for the right to make emperor’s robes out of fig leaves. WHY would we (learn and become the) mask if not to protect a sense of self-lack? – (regardless the form this takes in each case). As I am a nobody I can be easily ignored and because I write from a different framework of value – I can be easily misunderstood or not understandable at all. But just say I became ‘followed’ or seemingly influential in some way, then I might find a sense of not wanting to lose that (as if I have it!) – and a self-protective gesture can then align me in what others think or expect or want rather than allow whoever resonates… Read more »
The average lower middle-class voter who’s fear for his/her own future leads them to able change that might leave them worse off, even if logic informs them otherwise. They know that tax cuts for the wealthy won’t help them but vote for them anyway and they despise benefit claimants, those they see as milking the system while they work hard.
You ask: “What sort of gobshite believes this kind of stuff, eh?” The answer is – those who read the Daily Mail and subscribe to the biased agenda of the BBC – and these zombies are in abundance – perambulating aimlessly, eyes glued to their tablets and smartphones with their headphones insulating them from any engagement in the real world. As Roger Waters said “They are the walking dead”
Bravo!
Russian Communism’s internal contradictions caught up with its economy before American capitalism’s internal contradictions.
That’s why China has a mixed economy and why, every five years, their brightest people publicly address the economy’s ‘leading contradiction’ and resolve it.
They see this process as unending, which sounds right to me.
Thanks for this Frank. I’m reminded of the band playing on the deck of the Titanic as it began to sink. “Now comes the turn of the West and its Neoliberal system”. The crash is coming, and there’s nowhere to hide when it goes. Regards paid work, at 57, I’ve pretty much stopped looking. I know of others younger than me who’ve stopped looking also. Where are the jobs? I admit to struggling with economic terminology, but did find your article helpful in that respect, especially with the inclusion of graphs. Okay, for the 7th or 9th time, I’ll just mention again, there’s an excellent website called Neoliberalism Softpanorama that is a vast resource of information regards this warped, wicked dogma. Given what’s happened since 2008, it’s also understandable how right wing populism has made such strong inroads, especially given the parlous state of the anti capitalist Left around the… Read more »
DB has rallied a bit: by restructuring; hiving off its most toxic assets into a separate bank; and gutting itself of high-earning staff. I’m not sure what percentage of the 18,000 jobs they actually let go: or how much derivative exposure the wrote-down – but they have gone from a “toxic junkyard of chaos and complete unaccountability” (according to an insider) to become the model bank in just a few short months. And their share price has rallied a bit. I was joking about the model bank, BTW. As for the closely interlinked others: nothing much has changed. If anything: it’s getting worse. The main ‘structurally important financial institutions’ (SIFIs) – and the primary dealers for the Fed (ie all the main players) – are showing signs of a liquidity crisis and that they no longer trust each other. In other words: they are technically insolvent. Which is why the… Read more »
Model bank…. Good one. Yeah, I knew about the Fed and about the job cuts at Deutsche, and, despite being somewhat illiterate economically, my whole gut feeling is that the whole thing is going to implode, as Frank pointed out.
I need to look at Jack Rasmus more. Or Michael Hudson.
I know quite a few of my mag customers are struggling, and a number now only buy once a month rather than each fortnight. Quite a few of them have stopped buying period, and give a tip instead.
Only those in deep denial can’t see what’s coming. Cheers…
I think DB managed to hide $50 billion of their most toxic trash off balance sheet.
The trouble is this is just a drop in the ocean of several trillion of the total, which is certainly much greater than the size of the German economy.
I’ve heard figures up to $70 trillion, but it’s anybody’s guess and peons like us really don’t need to know. They probably don’t know themselves.
The German economy has a lot of problems overall. More than are generally admitted.
Us peons will find out when the whole ponzi scheme comes crashing to earth. I think some people are aware things are heading for a crash; a couple of my customers even read Zero Hedge for example, and I think others are very aware of the consequences of Neoliberalism on society, but for the large majority – well this is where the maggot media comes in: to keep the masses deluded and distracted and blind to the actual reality.
Left and Right are increasingly obsolete concepts now.
More like two cheeks of the same arse.
Identical ugly twin sisters.
Very good read, thanks for sharing. As a non-economist, it is very helpful to be reminded once in a while what the meaning is of unemployment, inflation, GDP and debt. I read: “Gross Domestic Product (GDP) also known as National Income (Y) is usually calculated by either the output, expenditure or income method. The output method is generally preferred.” I was wondering if there are numbers known while using the income method, inflation adjusted and then stratified for instance into quintiles or the upper 1% vs the rest. If you would do that, then I would not be surprised if you would find that GDP has only increased for the upper quintile (with huge increase in the top 1%). Even though it may be obvious that we should thank CEOs and millionaires for our ‘booming’ economy (because they ate the ones who have a high salary, which is good for… Read more »
But there is no shortage of money when it comes to the US funding militias and subversive groups all over the world.
Right now:
These proxis being, Turkish-backed Jihadists and Syrian Kurds. It makes little difference which is former and which is a current proxy. The main strategy for the US is just keep creating more terror groups and supply them with weapons. The show must go on.
GDP needs to redefined as Gross Debt Product. It’s the only growth in the economy.
There’s no shortage of money when it comes to a lot of things e.g. royal and sporting exhibitions, bailing out banks, the latest Hollywood movie junk, the latest disposable plastic commodity scam etc. Not to mention the scarcely believable sums constantly plowed into propaganda scams and disinformation strategies.
No shortage of demand for drugs and guns – ie a black economy for plausibly deniable support – as shown in Iran Contra but was that an exception or a rule?
When moving openly taxpayer dollar is siphoned.
In the current system money – and the debt or bond or contractual promise of money is the energy source that structures the forms of life that draws on it to live.
When a problem is systemic it is built in or upstream to all downstream effects.
There are no doubt many in the ‘business’ who shrug and say – ‘thats how it works’.
Do you want to eat or be meat?
Hierarchies have always been addicted to figure fiddling. It happens in economics, wartime and election periods.
We have been conditioned to believe that numbers don’t ‘lie’.
Hah, hah, hah, hah.
That was before global warming.
The US touts unemployment figures of 4% and inflation figures of 2%. The true figure for the first is about 17%, and for the second, about 10% if you include housing and health care. The US GDP figures are even more distorted. An appendectomy operation costs $60,000 in the US, $125 in Russia. So every such operation in the US adds $60,000 of monopoly price gouging to the GDP. Every ambulance journey costs $5,000. A pill costing a few cents to produce $750. Health care accounts for about 18% of US GDP. Another 40% is Finance, Wall Street spivs shuffling around pieces of derivatives toilet paper and pretending they are worth billions. The war machine accounts for another 6%. These three sectors are characterised by monumental fraud, waste, corruption, mismanagement and unproductive rent seeking, and together they make up two thirds of the US economy. Communism collapsed in 1989. The… Read more »
Communism collapsed in 1989. Capitalism in 2008? Few predicted either of them. Conclusion: be flexible and don’t count on historic trends to continue as expected.
New could also mean “better”, and better could be psychologically better even without bulging belly.