Economics, Politics, Top Stories
Corbynite Economics
written by Sam Bowman
A review of Stolen: How to Save the World from Financialisation by Grace Blakeley, Repeater Books (September 2019) 300 pages.
It is tempting for Jeremy Corbyn's critics to write off his electoral promises as bribes—a last-ditch attempt from the most unpopular major party leader in memory to buy his way to victory. There's some truth to this when it comes to pledged levels of public spending. But Corbynism is not an opportunistic ideology. He and the people around him have a set of beliefs about the economy that they take very seriously, and it's worth trying to understand them.
Stolen: How To Save The World From Financialisation, by New Statesman columnist and socialist campaigner Grace Blakeley, is one of the more serious attempts to set out a version of Corbynism (compared to, say, Aaron Bastani's buffoonish Fully Automated Luxury Communism). Blakeley, who recently tweeted that reading the Labour manifesto had moved her to tears, has tried to put modern leftism in a post-financial crisis context. Her book hopes to explain why she believes the crisis was the inevitable consequence of Thatcherite neoliberalism, and why now, more than ever, the time is right for socialism.
I'm halfway through the manifesto and I'm not ashamed to say I'm in tears.
This isn't just a plan to take on the powerful, it's a plan to rebuild our society from the ground up – a collective vision for a better future that we will work together to build. https://t.co/37fb7JLCq5
— Green New Deal Now Blakeley (@graceblakeley) November 21, 2019
Blakeley focuses on what she calls "financialisation," a term that means different things to different people but which she takes to mean the use of private financial markets as the dominant mechanism for allocating money for lending and investment, instead of, say, government agencies. She blames the rise of finance for two related evils: one, diverting investment away from industrial production towards speculation on things like housing and company shares, and two, bond markets forcing governments to adopt free market economic policies, or face higher borrowing costs.
Her story begins at the 1944 Bretton Woods conference, at which delegates from the Allied nations, including a British delegation led by John Maynard Keynes, designed the system of global currency that would last for thirty years. What they came up with was a loose peg to gold intended to prevent sudden large fluctuations in exchange rates but allow more flexibility than a true gold standard. This, according to Blakeley, kept financial markets in line by preventing large capital outflows and by restricting the supply of credit. This allowed the "Keynesian consensus" to emerge—a sort of moderate, worker-friendly capitalism characterised by generous government spending, an economy based on manufacturing output, and strong unions that could maintain some balance between the interests of workers and capital-owners. Not a Marxist's paradise, but hardly the stuff of nightmares.
That didn't last long. In the early 1970s, the oil crisis hit, Bretton Woods was abandoned, and true capital mobility arrived—what Blakeley calls "vulture capitalism." The Keynesian settlement became a victim of its own success, with unions capturing so much of the product of industry that capital-owners "revolted" and pulled their money out of places like the UK, leading to industrial strife that eventually brought Thatcher's radical free marketeers to power. Blakeley only spends a few pages on the 1970s, even though this was precisely the point where everything, from her point of view, started to go wrong. The 1970s, she argues, highlight the "contradictions of social democracy," because as unions grew in power, capital-owners still had the freedom to move their money elsewhere. (Readers with a deeper knowledge of the strikes and shortages that led voters to gamble on Thatcher may find Blakeley's version of events to be less than the whole story.)
Under Thatcher, Blakeley's thesis takes shape. By encouraging mortgage-funded home ownership and bringing in the "Big Bang" deregulations that led to the growth of the City of London as one of the centres of global finance, Thatcher's government began the financialisation that Stolen purports to be about. Blakeley believes that Thatcher's crushing of the unions was what made this possible: "Without resistance from the country's workers, she could go about entrenching neoliberalism and empowering the financial elites that had brought her to power." Debt rose, asset prices grew, and the financial sector became responsible for allocating more and more resources across the economy. Without state support, and with capital now being allocated according to profit-obsessed financial markets, industry across much of the UK collapsed. As more and more voters became property-owners, their interests shifted from being aligned with workers to being aligned with capital.
We then skip ahead to 2008. After twenty years of growth, which Blakeley describes as largely "illusory," the bubble bursts. House prices, which had risen and risen thanks to easy borrowing, fell sharply in much of the developed world. This caused banks that had lent money for mortgages, and others that had repackaged those mortgages into tradable financial instruments, to collapse. The bubble burst, the system (almost) collapsed, and the inherent contradictions in debt-financed capitalism were exposed for all to see. It was these developments that precipitated the landslide election of lifelong socialist backbencher Jeremy Corbyn as leader of the British Labour Party in 2015.
If that story sounds new to you, Stolen may be a useful book. It offers a fairly readable account of this account of postwar economic history, and it does so at a brisk pace. If, on the other hand, you have some cursory knowledge of the events of 2008 and the years that followed, much of it will feel reheated and oversimplified. Blakeley repeatedly digresses into discussions about some aspect of Karl Marx's thought, and why the events she has just described demonstrate that Marx was right about something or other after all. In the first chapter's explanation of Marx's theory of history, she describes a debate within Marxist circles about whether "Marx prioritised economic structures in his analysis of historical development, [or whether] he prioritised agency." It turns out he believed in both: "the nature of technology and the economy provides the overarching context in which human action takes place … But they do not determine human action."
This is a surprisingly anodyne version of Marxist history. Does anyone disagree that "Men make their own history, but they do not make it as they please," as Blakeley summarises her mode of analysis? It soon becomes apparent that she is less interested in "financialisation" as a phenomenon in itself than she is in using a relatively recent feature of capitalism to demonstrate an old Marxist claim: that capitalism sows the seeds of its own destruction. Readers hoping to understand how finance affects the "real" economy will be disappointed. Here, finance merely plays the role that "capital" did in the nineteenth century: as the rapacious, faceless force that proves capitalism can never really be sustainable.
Blakeley's analysis is often misleading. What she calls a housing "bubble," in Britain and the US at least, does not seem like one with the benefit of another ten years of evidence. House prices in both the UK and US are higher now than they were in the years leading up to the crisis—when "bubbles" burst, they do not tend to return to their old values within a few years. (A house in central London is now much more expensive than it was even before its "bubble" burst. A share in Pets.com is not.) Blakeley suggests that this is just a sign of another bubble, a claim which (for now) it is impossible to make with any certainty. It seems a lot more likely that climbing house prices are driven by planning restrictions that limit the supply of housing in large cities, combined with economic prosperity that attracts new workers and higher wages with which to bid up the price of the existing stock of homes.
If this were not the case, and mortgage borrowing were the main culprit, we would expect to see house prices inflated by roughly the same amount across the country, not largely confined to places where people most want to live and where supply is most inelastic. In Tokyo and Houston, for example, which have relatively permissive laws about the construction of new housing, economic growth and historically low interest rates have still not led to significantly rising house prices.
Blakeley has been criticised for misusing terms like "bank capital," which have a precise meaning that her text seems to misunderstand (she appears to be mixing bank capital requirements up with liquid assets and reserve requirements, for example). But, while these may reveal some fundamental misunderstanding of the things she is writing about, it may also be the result of hasty editing or an attempt to translate technical terms for laypeople. Much more troubling than some garbled definitions is the frequency with which Blakeley makes claims that have no basis in evidence, and for which she provides no citations.
Blakeley claims that productivity and worker compensation have decoupled, disproving a core tenet of mainstream economics—that workers will tend to be paid according to their marginal product, so strong unions are not necessary to ensure they capture a share of economic growth. But the data show no such decoupling. There is evidence that workers are being "paid" increasingly in forms of compensation other than wages, like pension contributions and, in America, health insurance contributions. But these simply change the mix of how workers are paid, and are mostly driven by changes in regulation. I may prefer to be given £1,000 in cash to an equivalent contribution to my pension, but it is hard to argue that the latter is not really payment to me.
Similarly, she claims that "people are having to work ever harder to maintain a lower standard of living." Despite the fall in living standards after 2008, this is simply not true. GDP per hour worked may have grown anaemically since the crisis in Britain, but it is still higher than it has been at any point in history (and inequality has not risen in this period). It is just wrong to suggest that living standards are falling—but it is the sort of claim that Blakeley has to make in support of her insistence that "we inhabit a revolutionary moment." If living standards are historically high and growing, just not growing as quickly as we'd like, the case for revolutionary upheaval is weak.
She also repeatedly makes claims about "illusory" debt-fuelled growth, including the extraordinary assertion that "during the pre-crash period, unprecedented levels of lending were the only thing keeping the US economy going." This declaration is unsupported by a citation and has no basis in fact. The most charitable reading is that it is Blakeley's opinion and she simply doesn't think that certain forms of economic growth really count. But it is also circular—we know the crash was inevitable because the growth was illusory, and we know the growth was illusory because of the crash.
Stolen promises a guide for "saving the world" from this financialisation, but Blakeley's policy recommendations do not inspire confidence. Borrowing from the recent People's Republic of Walmart, she points out that businesses are themselves centrally planned, and so it should not be counterintuitive to run a country along the same lines. This completely misunderstands how businesses and markets work. Businesses exist within a system that is generally designed for the ones with bad internal planning to collapse as swiftly as possible. Effectively, we get to choose between the most well-planned companies and, unless we have lent to, invested in, or work for a company that goes broke, we are largely insulated from the ones that fail. (This is one reason why we provide unemployment insurance to people who do have the misfortune of working for a company that fails, and why bailing out large banks sets such a bad precedent.)
For such a system to work for entire states it would need to be just as easy for families to migrate between countries as it is for workers to migrate between employers and for consumers to choose between different businesses. In practice, of course, the unfortunate citizens of centrally planned economies have often tried to migrate away, and had to be fenced in with barbed wire, or worse. Blakeley does not discuss the real world experiences of the sort of system she proposes, but she does recognise that investor flight is as much a challenge for centrally planned economies that get it wrong as it is for businesses.
To solve this, she recommends measures that will not sound alien to anyone familiar with the bolder elements of Corbynism: capital controls on taking money out of countries, measures to regulate banks and establish a nationalised retail bank, a "Green New Deal," a sovereign wealth fund, and part-nationalisation of industry along "democratic socialist" lines, where businesses are controlled by unions of their workers rather than capitalists. This last idea has made its way into the Labour Party manifesto, although Labour says it only wants to nationalise ten percent of each business affected, for now.
Stolen is a wasted opportunity. Blakeley's determination to vindicate Karl Marx means that much of the book feels like it has been generated simply to add new meat to some very old bones. This is a pity: there is plenty of merit to the materialistic Marxist analysis of history, and such an approach may have added something new to our understanding of the post-Thatcher era. But there is nothing like that here. There's very little attempt to persuade the reader of the value of Marx's thought, either. Blakeley's assumption seems to be that you are either already a Marxist, and therefore predisposed to regard any invocation of Marx as authoritative, or that you are totally unfamiliar with Marxism, and any other theory of history, and so a simple explanation of what Marx thought is sufficient to persuade you of his prescience.
Blakeley writes engagingly, although she leans too heavily on clichés (the "yawning" trade deficit is driven from the City's "gleaming towers"; the "moment of crisis" she describes could also be "a moment of opportunity"). It is footnoted thoroughly, and contains an impressive understanding of mainstream analysis of the crisis—indeed, this is the book's most informative and coherent chapter. But this also makes the rest of the book feel shallow by comparison.
Had Stolen been less slavishly devoted to Marx, and taken a narrower focus, Blakeley might have better explained her own views and their relevance to contemporary readers. But more time is spent discussing coal mining than, say, the internet and what her thesis tells us about tech giants like Amazon and Apple. In many ways, it is a book that feels badly out of date, and it is unlikely to be of interest to many people beyond those who already agree. Worse, it is riddled with exaggerations, unevidenced opinions, and dubious claims presented as indisputable facts. Halfway through, Blakeley tells us that "There is, of course, no such thing as neutral economic analysis." Stolen is certainly evidence of that.
Sam Bowman is a Senior Fellow of the Adam Smith Institute. You can follow him on Twitter @s8mb
Featured image by Kevin Walsh (Flickr)
Filed under: Economics, Politics, Top Stories
WRMF says:
I'd be in tears way before half-way through if I had to read that bullshit.
TidyPrepster says:
If you live among working people they will all assure you that it is true. Debt rises, jobs with pensions are almost a thing of the past, zero-hours contracts are the new normal, home ownership is a distant dream, young couples can't begin to think about having a family. What's that statistic? Half of American families could not meet a $400 emergency?
Home ownership is indeed an issues for younger people, in places like Canada this is mainly due to economic sabotage by places like China, coupled with the insane effects of higher domestic taxation and regulatory burdens on industry. That reality is hardly a recommendation of more socialism, however. Living standards are indeed higher, in comparative terms, due to technological/scientific advancements, but one has to take a broader look at the lives of a workers today and in 1950 in order to see it.
As for the other ills you mention, poor economic choices made by people, even when made en mass, do not evidence the fundamental failure of capitalism. There are many people in my orbit (all under 50) who work for a living and are doing just fine vis-a-vis home ownership, money in the bank, and provisions for retirement. There's nothing special about them, and they didn't rob anyone. They've just made better choices.
Edit: I often hear the complaints about zero-hour contracts, low savings and absence of "jobs with pensions." And it strikes me as gripes of the entitled. No one, now or in the past, has ever owed anyone a job with a pension. At one point in time, through a confluence of some factors, those jobs made some economic sense. They don't any more. (in many cases, we have socialist policies to thank for that, to boot) Complaining that reality is not to your liking does nothing to mitigate the effects of that reality on your life. People who make "better choices" realize the facts on the ground and position themselves the best they can in the economy as it exists, not as they would like to pretend it is.
For a concrete example of this take work-place advancement. Getting in on the ground level and working your way to the top in a single institution hasn't been the main mode of economic advancement for the majority of workers for the past 25 years at least. Yet I continually encounter younger workers who are shocked by this, for some reason. The key to success in this economy is adaptability and a breadth of experience, no amount of whining will alter the underlying economic conditions that make this so. Adapting to reality is a better strategy for success than adapting (more often pretending to adapt) to a fantasy.
PeterfromOZ says:
Tables like that are living proof of Dr Johnson's point that ''comparisons are odious.''
You make the typical categorical error that lefties make. COmparing the share of income between various groups is utterly and absolutely useless. In fact it is worse than useless, because it says nothong as to whether either group is doing well in absolute terms. Relative comparisons like this are just stupid lefty rubbish, designed to stoke up the biggest problem we have in the world : envy.
This whole argument is beneath you, Ray and you should be ashamed to have even brought it up.
Farris says:
"Half of American families could not meet a $400 emergency?"
Anyone who has ever worked with the poor knows this is a bogus statistic. Whenever I would meet with some poor individual going through a rough patch causing a financial difficulty he could not afford, I would notice the pack of cigarettes in his pocket, his cell phone on the table while he jingled the car keys and mentioned his cable tv bill. What most of these people mean when they say they cannot afford something is that they cannot afford it without altering their current lifestyle.
You really don't know anyone under 50 with a pension, IRA, 401K, CD or home equity?
Great to see you put a spear through the heart of the zero sum fallacy that Ray was touting.
It seems that even very sensible people can fall prey to the idea that income and wealth are fixed. The point is that the miilionaires created the millions. If the millionaires weren't there, then the income of the bottom 50% would not increase, but would instead fall, as the top percentile are the ones who create the largest value and money.
CuriousMayhem says:
It's hard to know where to start with such nonsense, especially an attempt to revive something so dead, so discredited as central planning. We live in an era of strange, self-referential cults that make me think of a collective social personality as a schizophrenic living in his own mental universe, talking bizarre but unshakable nonsense to himself. The paradigm of this today is the anti-vaccine movement, which seems impermeable to reason.
When the book's author writes about "financialization," she (along with everyone else of her ilk) runs together a sloppy and confusing mishmash of developments with historically illiterate name-calling. The confusion of Thatcherism with "neoliberalism" (I think "monetarism" is meant) is obvious. Thatcher wasn't put in power by financial elites – those elites barely existed at the time and had far less prominence than finance has today. Thatcher was put in power by three landslide elections. When she first won in 1979, Britain was in desperate shape, so bad people alive then (like me) don't want to think about it.
The proper meaning of financialization is the coming-to-dominance of the financial sector of the economy, which is best served by a financial sector that is subordinate and ancillary: it pools savings, forms capital, then allocates it. It does so in a market system based on private property and price signals. It should serve the so-called real economy.
But in an era of financialization, backed by the overweening power and influence of central banks, doped up on theories and political mandates to engineer prosperity (which they cannot do), finance becomes the thing-in-itself, rather than real economic activity (production, distribution, and consumption of goods and services). People start to think that wealth is money, instead of the power of production to which money simply points. The central bankers become central social planners in all but name, with the goal of inflating asset prices and making it easier and easier for more and more actors to get themselves deeper and deeper into debt.
The best indicator of financialization is the magazine cover. In eras of an advancing real economy, business and economics magazines have "titans of industry" and "geniuses of technology" and "merchants of mass production" on their covers, not bankers or hedge fund managers.
Whence this development? We never hear of the real and informed critiques of neoliberalism and monetarism, which come from the hard-money, free-market right, people like James Grant and David Stockman. A free economy requires sound money and reality-based interest rates and credit standards. The fundamental turning point was the abandonment of the gold standard by the US in 1971. The immediate purpose was to enable much higher levels of money printing to finance America's growing federal and current account deficits. It lead to the developed world's highest level of peacetime inflation and the eventual discrediting of Keynesianism, rightly so. Monetarism was supposed to provide the theoretical and policy framework for returning the growth of money and credit in line with the growth of the economy. It did that very well, for a while, as well as provide a decisive refutation of the fallacies of Keynesianism. High interest rates for most of the 1980s kept financialization in check.
The 1990s saw the dawn of a new era, however, one of ever more radical central bank easing, ultralow interest rates, and the collapse of credit standards, embodied in lightly-regulated, poorly understood non-bank lending. It is this era that has given rise to "mass financialization," with ever larger debt taken on by governments, households, and corporations. The financial system itself, while promising breathtaking rewards for those involved, at the same time becomes more and more interconnected, risk-laden, and unstable. Ultra-easy monetary policy diverts capital away from productive use and encourages malinvestment in speculative manias. The slowing of productive capital growth means slowing productivity and wage growth, stagnant living standards, and everyone – households, governments, and companies – taking on more and more debt to make themselves feel more wealthy than they really are. It only looks like "asset growth" to the financial side; elsewhere in the economy, those assets are canceled by the growth of liabilities. It's not a "real" productive asset, like a farm, a laboratory, a factory, or a good education.
The solution – and there's only one path that can successfully get us out of this – is a period of austerity and much higher interest rates, leading to a rebalanced economy with higher savings rates and a better ability to finance its own debt; followed by more productive deployment of capital in higher return ventures, something that will happen naturally with higher interest rates and better credit standards. Higher productivity will lead to higher wages and living standards. Policy today, and since the mid-1990s, has been built around encouraging everyone to squander capital, because it feels good, for a while. It's no more complicated than that.
Back to retro-Labour: All of this on top of other, extremely ugly aspects of Corbyn and Corbyism: his anti-semitism, his praise for sick, pathological dictators like Maduro and Mugabe, and apparent belief that the wrecks such people have made of their societies make them real utopians. The reality is stark: no decent, rational person would vote for such a man or his party. If he and his party win the next election in Britain, decent and rational Britons need to start making plans to leave. Businesses and international partners will certainly being doing just that, as well as marking the end of Britain's membership in the EU, far more decisively than Brexit.
ClosedRange says:
When I read the labour manifesto I felt physically sick in the stomach. It looked like they picked all the most extreme and hateful aspects of their ideology and put them centre stage.
As for the articles claim that we should understand Corbyn's economics because "He and the people around him have a set of beliefs about the economy that they take very seriously" I say this is a bad reason. Flat earthers take their ideas seriously, and we pay them no attention. Instead, the only reason to understand Corbyn's economics is to know and understand how much harm it would cause.
Let's recap who Corbyn is
a communist, despite the fact this ideology likely killed more people last century than any other
a terrorist sympathiser, from the IRA to Hamas to ISIS. Laying wreaths on the graves of the terrorists who attacked the Munich olympics is ok for this guy. Claiming that its wrong that the US should have gone after Abu Bakr Al Bagdadi - despite the man having been at the center of the worst Islamist movement to have happened since Al Shabab.
an anti-Semite through and through, who has overseen the purge of Jews from the Labour party through a campaign of abuse and bullying by his lackeys, who he provides cover for.
Labour is a corrupt, racist and extremist party now. We need only consider their ideas in order to refute them.
RayAndrews says:
TidyPrepster:
That reality is hardly a recommendation of more socialism
I don't like these loaded-term tug of wars. I don't suggest that more socialism is the answer, perhaps a few well aimed interventions (a tax on speculative real estate for example). If deburdening of industry would help, then that should be done too, and I don't care if that's labeled 'socialist' or 'capitalist', I care that it's a good idea.
Living standards are indeed higher, in comparative terms, due to technological/scientific advancements
It's hard to be objective in some ways. We have all these new gadgets of course. But we can't afford housing. I grew up in a time when an ordinary working guy could afford a house, a family, and his wife probably didn't have to 'work'. Folks were looking forward to the future, not dreading it. Bubba has a cellphone alright, but he sleeps in his car, and when he's too old to work I suppose he'll starve on the sidewalk because he has no pension, no savings, and if the TFMers get their way, he'll have zero social support.
poor economic choices made by people
The plutocrats have been saying this forever. You can dig up letters to the editor from the 1870's in which the wealthy claim that the poor have no one to blame but themselves for their state. It wouldn't be the starvation wages. Strange tho that when wages do rise, as after the war, the conditions of working people improve dramatically in spite of their eternal tendency to make poor economic choices.
Complaining that reality is not to your liking does nothing to mitigate the effects of that reality on your life.
But reality is what we make it. Every economy is designed. Every economy is steered in one direction or another, it can be steered to benefit the plutocrats, or the Victims, or the bureaucrats or the banks or the working people. At the moment it's the latter who are being left out. They may rebel as they did in 2016 in the US.
Find a graph for the same period that weights the income distribution.
One has to be careful of course. You can tell any lie you want with statistics. But I'm inclined to believe that sort of graph because there are so many pointing to about the same conclusion: workers are producing more but consuming less.
Simple arithmetic tells us that since the whole pie is always eaten, if the baker is getting less, someone else is getting more. I suspect the plutocrats are getting more and I am not surprised that they say that either it's not true, or that there's nothing that can be done about it anyway.
PeterfromOZ:
In fact it is worse than useless, because it says nothong as to whether either group is doing well in absolute terms.
Well, I agree that absolute terms are the more important. If my productivity increases and my living standards also increase, I'm going to be less worried about some other person's wealth skyrocketing. Nevertheless I might take the time to wonder why the parasites that I feed are taking a bigger and bigger share. However, if my productivity has tripled over the last few decades and my standard of living is dropping and I see the parasites now wealthy beyond the dreams of avarice, then I might start asking questions. For example, if I'm in robust good health I'm probably not even going to give any thought to whether or not I have intestinal parasites, and I probably do, but they're not killing me so live and let live. But if they do start to kill me, then I'm likely to go to the doctor and have them purged out of me, no?
Farris:
No … almost. Mind, I'm 'translating' to Canadian, we don't have 401Ks. I don't know if there are any other working class folks here at Quillette, if there are I'd ask them to comment. I know folks who have managed to buy but they are up to their eyeballs in debt and if mortgage rates rise, or the bubble pops, they will be wiped out clean. Generalizing, looking at my own extended family, those above … where does the second derivative inflex? … say 40 … are, you could say, barely afloat and so long as they struggle, they'll make it. Under 40? Nothing. Day to day survival is the mentality.
K_Dershem:
Excessive demands for equality should be criticized as well – both Ray and I emphatically reject socialism.
Indeed we do, tho not perhaps social policy. There was a time when even in the US the working class had no problem with the millionaires because they general belief was that the latter had earned it. The workers had notions of becoming millionaires themselves, or at least believed that their kids would prosper. Absolute equality is a truly absurd notion.
As to the latter point, nothing is "rigged" in favour of the wealthy.
Sorry, but that's just outright false. They say that Amazon pays zero federal tax, would this not be somewhat more favorable to Jeff B. than if, say, Amazon was taxed at 50%? Every economy is 'rigged' in someone's favor, it is inevitable. TFM does not exist except among criminals. Since at least the time of Alfred the Great in England the economy has been regulated. As I like to point out, the rotten commie Romans understood that roads and aqueducts would be supplied by the state and they did quite well didn't they?
So, reading those graphs together, more money is shared among more people than in the 1960's, which undercuts @RayAndrews point somewhat.
It's not a bad thing in itself that there are more millionaires, but these are still a tiny fraction of the population. If half are getting poorer, that's the greater concern.
Highly progressive tax rates rob the most productive members of society of incentives to produce
Yet America was at its most innovative when tax rates were far more progressive than now. Honestly, I believe that taxation is good for innovators the way that exercise is good for lions – if they get fat and lazy they themselves suffer. Keep our innovators lean and mean and even hungry I say. It's when they become fat rent seekers that things go wrong.
all of those systems depend on the largess of the United States and its engine of medical innovation
There is something to that, but one can make a bit too much of it. Innovation means new drugs of questionable merit, and new machines that are interesting but that only add to costs. Our system would be cheaper if we didn't have the new toys.
No 'zero sum' here. What we have is what the workers produce, and that's 3X greater than it was in the 70s, no? Genuine innovators and business organizers are of course 'workers' too – they produce something. Rent seekers … not so much. Moneyists (Goldman) produce nothing but economic uncertainty and collapses – they harvest apples by cutting down the tree.
CuriousMayhem:
finance becomes the thing-in-itself, rather than real economic activity
Exactly so. But sooner or latter the mirrors shatter and the smoke dissipates.
"titans of industry"
Yup. There was a time when a Ford or an Edison were considered super heroes by one and all. They made something.
Policy today, and since the mid-1990s, has been built around encouraging everyone to squander capital, because it feels good, for a while.
This man should rule the world. Thanks for these comments Sensei, it shows that one can be BS-free.
Yes a lot of that prosperity is built on the airy persiflage of house prices and the machinations of finance in the City
Indeed. How long can something be floated on nothing?
… don't know if you had the pleasure of growing up with WB cartoons.
Lies, damned lies, statistics, and anything the Left says.
Let's go down Ray's list:
Debt rises,
For the areas where the Left is meddling far too much:
image.jpg1431×1333 443 KB
And yet standards of living increase.
jobs with pensions are almost a thing of the past
So are tires with real rubber, which have also been replaced with modern alternatives.
zero-hours contracts are the new normal,
A tiny fraction of the population here meaning "normal", but I can appreciate your complaint that the amount of hours a person ends up working might not be zero, which is the left-wing ideal.
home ownership is a distant dream
…thanks to left-wing regulation, and yet the average square footage that people actually live in keeps getting larger. To say nothing of the huge number of third-worlders now sharing the country - why do you hate brown people, Ray?
young couples can't begin to think about having a family.
Except for all the ones that do. Even the poor ones. How ever do they do it in Africa?
Go rewatch the first few minutes of Idiocracy, Ray!
https://www.reddit.com/r/Economics/comments/bx8gux/americans_may_be_strapped_but_the_goto_statistic/
No one I know below the age of 50 has savings.
Charles Murray was right; people do cluster together with like-minded people, for better or for worse!
Look at my stupid graph!
There is no "national income", communist. But thanks for the graph with the distorted vertical axis!
@Ray
The map you included (Who owns What in the U.S.) undercuts the point you appear to be trying to make. The map gives the impression you are more concerned with what others have and not how to foster savings among the less fortunate. If you believe some have less simply because others have more, then I confess I can not debate the zero sum green eyed monster. Your entire argument is based upon three self created classifications; Workers, Rent Seekers and Moneyist. Clearly you favor Workers over the latter two and Rent Seekers over Moneyist. Since your desire is to simply take from the Rent Seeker (some), the Moneyist (more) and redistribute to the Workers, there is no rational argument that can counteract envy.
Domash:
Krugman is a liberal but is quite careful with his facts. H
Has a bigger lie ever been told than the claim that Paul Krugman, who is as wrong as a human can be every time he speaks, is careful with facts?
I grew up in a time when an ordinary working guy could afford a house, a family, and his wife probably didn't have to 'work'.
Translation: When the destruction of WWII gave a small portion of the world a monopoly on nearly everything by default, leading to unprecedented and unsustainable well-being for the mediocre in those areas. And they owned one car, one TV, and rarely ate out, with the wife doing a lot of cooking, maybe some gardening, and at least some clothing. And few people went to college.
While the rest of the world was miserable.
"Inequality" statistics are always walled - always restricted to people within some prosperous society. Studying the world as a whole is the death of your ideology.
You can dig up letters to the editor from the 1870's in which the wealthy claim that the poor have no one to blame but themselves for their state.
And they were, then as now. Ray, eternal master of the logical fallacy, makes no argument as to why that isn't true. Even today San Francisco is crawling with homeless drug addicts, and our Left, much more than our Right, mocks the "People of Walmart".
Watch the movie, Ray.
Simple arithmetic tells us that since the whole pie is always eaten
There is no pie. Dear Lord, will this lie never die?
Add taxation, value of benefits, and social welfare redistribution to the numbers in that graph (oh wait, no Leftist will EVER do that, because it would debunk everything he believes in). What's the matter Ray, don't want to consider what it will look like when the rich's line goes way down and the poor's line goes up?
Nevertheless I might take the time to wonder why the parasites that I feed are taking a bigger and bigger share.
Gee, such a neutral, rational view of the world! A true "centrist" uses language like this all the time!
As I started saying in 2007, "A Democrat is someone who insists he's not a socialist, but condemns everything to the right of socialism as apocalyptic right-wing extremism."
Ray is a Democrat.
Look at my stupid map!
If socialism reigned, 0.001% would control everything. But they'd say that they own it in the name of "the people".
Indeed we do, tho not perhaps social policy.
Or any other aspect of it.
There was a time when even in the US the working class had no problem with the millionaires because they general belief was that the latter had earned it.
Some did, some didn't. Same as today.
Sorry, but that's just outright false. They say that Amazon pays zero federal tax, would this not be somewhat more favorable to Jeff B. than if, say, Amazon was taxed at 50%?
You are the one whose statements are always false, Ray. Amazon pays an extraordinary amount of taxes, including payroll taxes, sales taxes, property taxes, workman's comp, etc. They do not pay a tax specific to profits so long as they do not have profits, which makes them no different than anyone else.
Genuine innovators and business organizers are of course 'workers' too – they produce something. Rent seekers … not so much. Moneyists (Goldman) produce nothing but economic uncertainty and collapses – they harvest apples by cutting down the tree.
Your ignorance doesn't make things worthless.
Goldman doesn't cut down trees, it plants them. It allows investors, who volunteer their money for investment, to find the highest and best use of their investments. Your failure to appreciate that doesn't make you any different from the Luddite who thought Ford's automobiles were going to be the downfall of society.
Rent-seekers are your kind - the people who want to be given money they haven't earned because others have more than them. Do not slander the productive with your characteristics.
Thersites says:
This view is at odds with nearly all mainstream economists.
Ah, an "appeal to authority" argument. And what is the authority? Nytimes, the place that gave us predictions of economic gloom for 2016. And Krugman is not careful with his facts, his facts are captive to his ideologically.
Oh boy. Others on the thread have very effectively dismantled your assertions - the whole pie thing is particularly ridiculous - but that's not the focus of my comment.
You live in Canada, as do I, and say that you don't know anyone under 40 in a financially stable situation with savings. While that's most likely entirely true, it doesn't mean that such people don't exist, nor does it mean that you or anyone of the unfortunates you happen to know can't get there.
Allow me to offer a personal example. I've already used most of this elsewhere on the forum, so it's sort of already out there. A bit of background: I'm an immigrant. I'm in my late 30s, and I live in one of the most expensive places in Canada (and the world).
I've started my present career in the early 2000s, with a weekly, on-call job pushing excel spreadsheets around. This job was obtained through a staffing agency (Robert Half, I think), and at the time, just out of school, I was happy to have it as it allowed me to (barely) sustain myself and help out my family, which required help from a 20-something due to a recent upheaval. The grand total of my hourly wage at this job was $11.75 per hour. After some time in that job, working week by week, I found out that Robert Half was charging out my services at $20 an hour, and remitting me the $11.75.
This told me two things:
The work I was doing was worth $20 an hour in the market.
The placement at this job and the legwork inherent therein was worth 8.25/hour to me because I didn't know about the job before and didn't obtain it on my own, and I was better off having the job, than not.
Now I knew more than I did when I started, so I could choose my market interactions more intelligently in the future, and I did. My next job pushing excel spreadsheets around? You guessed it: paid $20 an hour. The next one paid $35… My resume now is 9 pages long, and that's after I cut it down. Along the way, I realized that I needed to upgrade certain skills and doing so through strategic coursework pushed my price in the market yet higher until we get to today where I charge north of $100 for an hour of my time.
It wasn't all easy, and I made some ill-advised lateral moves along the way between then and now. None so ill-advised as to imperil me in some catastrophic way, however, so here I am, with RRSPs in the bank, property on my ledger and a little more than $400 shiny ones to scrub together in an emergency. Most of the people I work with, incidentally, are more or less in the same boat as I - which means hundreds upon hundreds of 30 somethings, doing a little better than your average naredowell.
The difference between how I view the economy and how you appear to view it is that I view myself as an active participant, making choices and trades. You seem to expect that your mere existence in an economy should entitle you to some outcome. One of these views leads to monetary success, the other doesn't.
One thing I want to mention relative to the map you posted is that it gives the impression that the top x% have lives several hundreds of times better than the rest.
More generally, the most common mistake of left wing critiques of wealth distribution is they tend to make the category error of thinking that wealth in a modern industrial capitalist society is the same as wealth in an agricultural society. In an agricultural society, like pre-revolutionary Russia, it is true that the guy in the village with twice as much grain as the rest will survive the winter whilst his neighbours will watch their children starve. In fact, it isn't just a coincidence that communism has so far only truly taken over in societies that at the time were primarily agricultural (Russia, Vietnam, China, North Korea) or otherwise sustained by a few commodities like oil (eg Venezuela).
By contrast, wealth distribution statistics in a modern capitalist society are hugely disproportionate to real differences in people's lives. Bill Gates is maybe about several 10000s of times richer than me, but I would estimate that maybe his life is only about 5-10% more fun, enjoyable and so on. Any food he can eat I can eat too, any music he can listen to I can listen to as well. He might get the best healthcare in the world, but he is only likely to get a few more months on average than the rest of us.
The problem is that money is on a heavy slope of diminishing returns. The truth is that once your basic needs are covered (including houses, healthcare and so on), money very quickly has a diminishing impact on quality of life. Some easy examples are that a 10 dollar Casio watch is actually arguably a better watch than a 100,000 dollar Patek Philipe. A Toyota Yaris is arguably a better car for most people than a Lamborghini. Much easier to park and better fuel economy. A 0.50 cent bic pen is just as good as a Mont Blanc fountain pen, and way easier to carry around without scratching it.
Another example is that my house is worth X, but two streets away, my neighbours houses are worth 2 times X. But from all practical points of view my house is arguably nicer, it's just theirs are 5 mins closer to the train station. I think I'm the winner in this situation, but wealth statistics would have me at a disadvantage.
Another example of how wealth statistics can become practically meaningless: the great recession wiped out about 30% of all asset values, yet the people who lost the most money didn't experience much change in their day to day life. Most of that "wealth" was just a theoretical estimate on how much cash they could get if they sold all their possessions. Since nobody ever does that except when they die with no heirs, it shows that measuring people's wealth to produce wealth inequality statistics is not actually representative of reality.
Once we realise wealth statistics are somewhat vacuous, we can try to better understand the big difference between a capitalist society and an agricultural one, and thus understand why the left has misunderstood the situation. In an agricultural society, people make and produce food, and have only limited capacities for bartering. If a guy amasses lots of grain, so much more than all his neighbours, he can't invest it - there's not enough worthwhile things to buy with it, so he keeps the grain in his house, and it sits there until he eats it himself. Nobody else gets a share of it.
In a capitalist society, people have nominal wealth attached to their names but in reality that money is elsewhere working for somebody else. In fact, this is the lion's share of money in the modern world. Indeed,
after buying your house, your food, and paying for your entertainment, healthcare and the rest of your daily needs, all you have left is to save money and invest it - which entails giving it to someone else in the promise of future repayment. This is one of the most important aspects of capitalism, which is in fact a form of mutually beneficial wealth redistribution - I invest in my fellow people's future because I don't have a need to convert all of money now into goods or services. I think this mechanism is probably the most misunderstood by the left, that think investors are somewhat parasitic. The most basic example of how this form of capitalism works in a healthy and socially productive way is through the building societies that originated in 18th and 19th century England and Scotland, which were the first mortgage lenders to ordinary folk on modest incomes.
I think I've made my point now that money and wealth is actually a poor measure of the differences in the lives of rich and poor. As an alternative, I think people need to look more at real data that captures true differences in peoples lives. I think it is far more relevant to look at discrepancies in peoples experiences, such as how big variance is there between rich and poor. Some examples could include life expectancy, exposure to criminality, violence, divorce, drugs, addictions, and so on. We do know poor people suffer more from these things, but my guess is that the gap between rich and poor in western societies has never been smaller than now. I think these are far more relevant indicators of equal or unequal societies than just theoretical wealth statistics.
Your graph doesn't show the poor failing to get richer, it just shows that there is a disconnect between nominal values of money and wealth, wages, and productivity figures. As others have said, exponentials in population growth, production, interest payments, etc are hugely conducive to this, and it would be bizarre if they shouldnt appear.
The point I want to add is that GDP figures, and income figures, is largely just talking about how much money changes hands. If I give you a fiver and you give it back to me, that's 10 dollars of GDP just like that.
More broadly, too much of the "inequality" literature is about relative wealth understood in a narrow way. It's a sad state of affairs that words with powerful emotional appeal such as poverty are usually given a narrow technical meaning by institutions and bodies, such as being below a certain average value of income or wealth or a cerain percentile in average or median terms. For example, many institutions (OECD, branches of the UN, etc) define poverty as being below 60% of the median income, but they are not stupid and realise that this measure is flawed. Usually, their reports discuss methodology and it comes with lots of caveats - yet activists tend to lose that part of the message when it comes to campaigning for radical change.
These definitions produce very flakey results. So for instance, in a small village of all low to middle earners, when someone wins the lottery and raises the average amount of wealth, these statistics would tell you that poverty increases. Even more powerful a force is population growth - imagine a village with 10 people, each earning 1 Unit of money a year. Next year they have 10 babies - the median income is now 0.5, with 10 people above and 10 people below. Poverty has gone from 0 to 50% overnight. Except everyone is overjoyed and very happy about the cute little fingers that have come into their lives.
This is a hugely simplified story, but it shows how age is so important. Most of the human population is young - in some countries, in particular the Middle East and in African countries, around 50% of the population is below 25. Since people's wealth is obviously hugely related to their age, it's clear that some of these statistics just boil down to demographics of age.
I'm sure the converse is true of our societies as the population ages - the adults with all the money aren't dying off quickly enough to compensate for the lack of money of the young. It doesn't mean anything is unfair in any way though.
A second point about statistics like "the gap between richest 1% and poorest had increased X amount" is that they are easily misleading on who is in that 1% and who is in the bottom. The sentence gives the impression that it's the same people at the top and the same at the bottom, but this is hugely misleading.
This has been detailed in several good articles recently (will try my best to find them when I have time, but I think Quillette or the Spectator did one) is that if you instead track who is the top 1% of earners, and check on them 15, 20 or 30 years later, then, if they are alive, their chance of being still there in the top 1% is fairly small. Similar for the bottom 1%. In fact, i can't remember the numbers exactly, but I read a short while ago that a fairly big portion of the population (maybe around a quarter of us) will be in the top earners at some point in our lives (maybe around top 5%-10% - I can't remember the details, so sorry for that). I conjecture that many of the top 1% of earners will have been in the lowest 1% at some point in their lives (it's called being a student). Depending on how exactly stats are made, maybe all of us are in the bottom 1% at some point.
I think it's clear now that relative statistics are really bad at capturing how people live. I therefore think that these statistics can't be used to prove that inequality is rising.
There's also the broader point that has been forgotten by many, which is that money doesn't correlate with health, happiness, or a good life.
So to better talk about inequality, I think we should just drop the wealth stats entirely, as they are so easily misleading, and instead, we should look at real statistics that measure people's lives on absolute terms. For instance, I've read that from a while ago, the life expectancy of most Africans today is higher than that the richest 1% of Europeans had in the 1950s. I've also heard that you can be born in the poorest 1% of the population of the world today, and your probability of dying as a child is less than that of the richest 1% in the 1900s (and most likely even more recently). If you look at the nutrition of the poor today, I'm willing to bet that in terms of vitamins, calories, etc, it is better than that of the richest in many historical times. I think Steven Pinker might have had a chapter in one of his books on how many calories people had in their diets at different times. It's likely that the rich always eat well, but I believe the gap between rich and poor has substantially been reduced.
It seems to me the truth is that the gap between rich and poor in absolute measures of quality of life have all been reduced. In this viewpoint, inequality has never been lower.
Now, I do concede that humans are a status driven species, and they can be quite discontent with not attaining the social status they think they deserve. So, it is indeed likely that people believe inequality is at all an time high because of their view of the status gap widening between rich and poor. I particularly worry that richer people all too often see the poor as useless, uneducated deplorables, who ought to vote as they are told, but that's a topic for another time.
I do think the status gap is important, and it's a natural human trait that can't be ignored, especially since it's largely part of the competition for mates. I'm sure many people would rather be Genghis Khan with access to all the wives of his slain foes, despite having gout and bad breath, than be a well cared for and well fed but otherwise unremarkable person.
Ps: I do apologize for being not linking source material - I'm sure I could try to find it all but I read so much and don't take notes.
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