Capitalism – Not China – Is to Blame for the Current Global Economic Decline

Yves here. One minor quibble. Capitalism is not monolithic. It comes in many forms. For instance, for decades in Sweden, the government placed strong curbs on private rights. In Japan, entrepreneurs are revered for creating employment, not for generating profit.

And Adam Smith himself called for a capitalism with strong curbs on monopolists and prohibitions against employers colluding to suppress wages.

Capitalism cannot exist without a government apparatus. A market system depends on governments to enforce contracts and other “rules of the game,” like truth in advertising. Private businessmen also have time horizons that are too short to allow for the private financing and operation of infrastructure, so that again falls to public or quasi-public entities, like utilities.

The necessity of a meaningful government apparatus for a capitalist system to operate means it can intervene in corporate-labor relations to prevent capitalists from following their own impulses to their ultimate detriment. For instance, in the 1960s, the auto industry arrived at an understanding with labor called “The Treaty of Detroit” that served as a template for other labor negotiations. President Kennedy jawboned the carmakers. He made clear that if the benefits of productivity gains were not shared with workers, he would push for legislation that would require that.

By Richard D. Wolff, a Professor of Economics Emeritus, University of Massachusetts, Amherst. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. Originally published at Truthout; cross-posted at the author’s request

Capitalism, like a speeding train, barreled into a stone wall in 2008. Shocked and dazed, its leaders have been trying to “recover.” By that, they mean to fix the mangled tracks, reposition the locomotive and cars on those tracks and resume forward motion. No basic economic change, in their view, is needed or even considered. They see no absurdity in such a “recovery plan” – just as they saw no approaching catastrophe in the years leading up to 2008.

It was Marx who clearly explained in Capital the contradiction capitalism’s leaders rarely grasp. Showing how capitalists compete (and survive in competition) by maximizing profits, he focused his readers on capitalists’ strategies of “economizing” on the number of workers they hire (often by substituting machines) and/or replacing more costly workers with cheaper employees. The contradiction emerges when their economizing undermines the market for what capitalists must sell to survive. Boosting their profits by saving on labor often reduces laborers’ total purchasing power, what they can afford to buy from capitalists. That hurts capitalists’ sales and profits. Likewise, when workers’ wages and salaries rise, the resulting benefits to capitalists’ sales can be partially or totally reversed as higher wages cut into profits. The history of capitalism often wobbles between the poles of this contradiction.

Starting in the 1970s, capitalism intensified its economizing on labor. This became possible because huge new supplies of labor power entered the orbits of the established old centers of capitalism (Western Europe, North America and Japan). Most of those new, additional workers had previously been excluded from the labor forces available to those old centers. They had been kept away inside capitalism’s formal and informal colonies in Asia, Latin America and Africa or else inside state capitalisms (Soviet Russia, Eastern Europe and China). After the 1970s, such workers were brought into direct capitalist employment either by migrating to Western Europe, North America and Japan or by the movement of capitalist enterprises from old to new centers (China, India, Brazil etc.).

Integrating those newly available workers into globalizing capitalism raised the total supply of labor power far above capitalists’ demand for it. That supply-demand imbalance sharply lowered their wage bills and boosted their profits. Capitalists’ lower outlays for workers’ wages might have quickly depressed the purchasing power of the total working class, undermined the market demand for capitalists’ output and thereby depressed profits: another case study of capitalist contradiction. However, the 1970s saw a quite unique development that postponed the depression of working-class demand. A massive expansion of consumer credit (mortgage debt, car loans, credit cards etc.) in the old capitalist centers took off. After the 1970s, workers offset stagnant or falling real wages there by borrowing.

Capitalists enjoyed ever higher profits after the1970s since labor productivity kept rising (what workers provided to employers) while wages (what employers provide to workers) did not. The rising profits deposited into the banks flowed out, in good part, to become rising consumer loans. The consumer credit explosion since the 1970s postponed the classic capitalist contradiction. It propped up consumer demand that might otherwise have tanked when a sharply expanded, globalized labor force enabled capitalists to economize on their wage bill.

But then in 2008, 25 years of rising consumer debt based on stagnant real wages reached its predictable limits. As workers’ incomes proved insufficient to service bloated debt obligations, their defaults – together with those of financial firms that had speculated in consumers’ debts – contributed to the 2008 crash. They also contribute to the subsequent “recovery” that has bypassed most Americans.

Capitalism’s recovery now proceeds like another speeding train headed toward contradiction and catastrophe. Capitalists continue to profit from stagnant wages (enabled by the continued excess supplies of labor power relative to demand) coupled with rising labor productivity. Yet they also confront weak and weakening market demands that cannot absorb what capitalist production capacities require for profitability. Mainstream ideology drives the refusal to see capitalism and its contradictions as central to today’s economic dilemmas. The major “recovery” strategies reproduce the same capitalism with its contradiction.

China too is both victor and victim in capitalism’s contradiction and its temporary postponement from the 1970s to 2008. On the one hand, the stagnation of wages coupled with the expansion of consumer (and government) credit in North America, Western Europe and Japan provided soaring demands there for relatively cheap consumer goods exports from China. Having bet its industrialization strategy on those export markets, China achieved economic superpower status by selling into capitalism’s contradiction and its postponement via credit. Likewise merchants such as Walmart achieved parallel status by being the retail outlets for Chinese products. Financial enterprises in capitalism’s old centers perhaps benefited the most as they developed extremely profitable ways to securitize the consumer debt, sell it and insure it (credit default swaps etc.). Financial enterprises benefited doubly as they also managed (via hedge funds etc.) the extreme wealth redistributed and concentrated upward by stagnant real wages and the postponement of capitalism’s contradiction via credit.

But now China is becoming a victim of the classic capitalist contradiction. China’s exports flag because consumer demand in capitalism’s old centers is falling. Wage stagnation in those centers can no longer be offset by credit expansion. Nor can it be offset by rising demand among what are still the far lower-waged workers in capitalism’s new centers (China’s included). In simplest terms, capitalism’s post-1970s global development substituted lower- for higher-waged workers while it redistributed almost all the wealth created since the 1970s to a top 1 to 3 percent of the world’s wealthy.

The eventual effect of capitalism’s contradiction (notwithstanding its temporary postponement via credit) was predictable. Chinese production would slow down and thus cut its demands for raw materials, energy and many other basic production inputs. Falling sales of those inputs are now decimating the many national and regional economies that became dependent upon selling those inputs to the Chinese and other new capitalist centers. Thus global economic decline persists – notwithstanding the endlessly hyped “recoveries.”

The cause of global economic decline is not China (or any other particular part of a more-globalized-than-ever world economy), but rather the capitalist contradiction that could no longer be postponed by credit extension. That so many contemporary economic pundits and others blame China reflects a combination of very superficial economics and old-fashioned China bashing.

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  1. Larry

    Then as it ever was, there is a deep requirement that government recirculate surpluses that are accumulating in the vaults of the squillionares. I keep getting this theme reading Naked Capitalism. The elites are collectively pulling up their oars. Be it by suppressing wages, conducting massive share buybacks, undergoing record mergers and acquisitions, or fomenting more destructive war, elites only answers are to enrich themselves as much as possible, consequences be damned. So when is there a breaking point? Another financial crisis and major unemployment that can’t be reversed by Federal Reserve spigots?

  2. Disturbed Voter

    Government creates the false impression that workers can afford more than they can, or that business can economize more than they can … because government is buying worker votes or accepting contributions from business. Integrity is lost in the process. And ultimately no system can survive with too great a loss of integrity.

    One aspect of integrity is the idea that you can’t have your cake and eat it too. Government action can make this utopia seem possible, leading to mis-consumption and mis-investment. Including financial figures as part of the GDP is another failure of integrity. Borrowing from Peter to pay Paul.

    All recessions are caused by temporary failures of integrity. Depressions are caused by the refusal to acknowledge this. Refusal to acknowledge reality can be fatal.

    1. rkka

      “Government action can make this utopia seem possible, leading to mis-consumption and mis-investment.”

      Please explain how a presidency begun with a speech on ‘Rugged Individualism’ which denigrated government action caused “mid-consumption and mid-investment” that caused the Great Depression in an effort to achieve the Utopia you mention.

    2. Jim Haygood

      “The Federal Reserve, like a speeding train, barreled into a stone wall in 2008.”

      With this new topic sentence, you don’t need to read the rest of it. :)

      When the yield curve inverts, bad things happen to good people.

      1. OpenThePodBayDoorsHAL

        I stopped at the sentence “wage stagnation in those centers can no longer be offset by credit expansion”.
        Says who? Under the old rules this might have been true, where creditworthiness had to be eventually acknowledged by an entity with a balance sheet where assets eventually are matched with liabilities and where debt service eventually must rely on income. But we have a new actor on the stage: the hyper activist central bank. Unlike CBs of old, these are more like hedge funds that can never get a margin call, since all they need to do to “balance the books” is self-issue more of their scrip. They can own any asset they like in order to prop up its price (the BOJ will own 100% of Japanese equity issuance ETF by 2017). They can “indefinitely” suppress the price of debt service. The main effect of course is the declining value of the scrip, but if all CBs coordinate in debasing the relative effect is less discernible. They comprehensively manipulate all data on household inflation so the frogs never notice that the burner has been turned up to 11. The 1% that benefit have comprehensive control of the media organs that convince the 99% not to worry that their income, purchasing power, net worth, and financial security are all declining. The entire society becomes a giant Hunger Game, if only you could get into the asset-owning class then you could be OK, if you can’t then it must be because you’re dumb, or you’re lazy, or just because you are not a good and worthy person.

    3. hemeantwell

      It’s the economy, stupid. It’s not government. Government legalizes, administers and struggles to compensate for capitalism.

  3. Paper Mac

    Really weird to see invocations of Marxian economic theory with passages like this:

    “Capitalists enjoyed ever higher profits after the1970s since labor productivity kept rising (what workers provided to employers) while wages (what employers provide to workers) did not. The rising profits deposited into the banks flowed out, in good part, to become rising consumer loans.”

    The first sentence is at least highly contentious- it’s not at all clear that the profits of labour intensive industries after the 1970s continued to increase, and as Andrew Kliman has (persuasively, in my view) argued, Marx’s tendency of the rate of profit to fall is very much in evidence here. The second sentence is just wrong- deposits do not fund loans. It’s perplexing that these kinds of just-so stories still form the basis of people’s thinking about the crisis when there are so many good reasons to believe that the situation is much more complex than this.

    1. scott

      In the early 70s the US had to end gold convertability as it was facing the debts of the Vietnam war. The resulting inflation cut the real earnings of the average worker (which peaked the same month Nixon closed the gold window, no one wants to admit) dropped in half. This was made up by the two-income family.

      The real elephant in the room is Obamacare. Take the equivalent of a car payment (or for some, a house payment) out of a families’ income for essentially nothing and watch consumer demand collapse. It won’t be called the “Obamacare recession” until he leaves office, but you heard it here first.

      1. FishOutofWater

        Health insurance costs and healthcare costs have been rising rapidly for decades. Obamacare is a response to the rising unaffordability of health insurance, not the cause of it. Insurance companies are classic rentiers in the health business. They collect rent for limiting access to care and managing payments to providers. Single payer health care eliminates the rent paid to insurance companies, thus cutting costs. The failure of red states to expand Medicaid has caused the cost of health insurance to go up in red states because someone has to pay for ER care to the uninsured. Republicans have made Obamacare look bad by that strategy, but their voters have paid dearly for their machinations.

        Monopolistic practices by big pharma make drug costs much higher in the U.S. than anywhere else in the world. Our health care is the most expensive in the world, not the best in the world, because we have so many economic parasites in our health care system. Obamacare did nothing to get rid of those parasites so it won’t keep costs from continuing from being the highest in the world, but it is not the cause of the high costs.

    2. Osbie Feel

      The profits were transfigured into consumer loans not through literal deposit accounts, but rather the purchase of bank-shares using the profits. I would further argue that the contradictions are not being ignored; the contradictions are a feature of economic planning.

      Regulators require me as part of an agreement, as I sit at my desk, that I act prudently while simultaneously requiring me to liquidate assets, under regulator receivership, as fast as possible. The agreement has contradictory terms within the same paragraph, possibly the same sentence. Absolute accountability is no accountability, whatsoever.

  4. Keith

    In our wonderful new, supply side, trickle down world we have taken our eye off the global consumer.

    How is the global consumer these days?

    1) The once wealthy Western consumer has had all their high paying jobs off-shored. As a stop gap solution they were allowed to carry on consuming through debt. They are now maxed out on debt.

    2) Japanese consumers have been living in a stagnant economy for decades.

    3) Chinese and Eastern consumers were always poorly paid and with nonexistent welfare states are always saving for a rainy day. Western demand slumped in 2008 and the debt fuelled stop gap has now come to an end.

    4) The Middle Eastern consumers are now too busy fighting each other to think about consuming anything and are just concerned with saying alive.

    5) South American and African consumers are busy struggling with economies that are disintegrating fast.

    Oh dear, no wonder there is no demand for Chinese products or any other products for that matter.

    1. Uahsenaa

      For as much as Western economists like to scold the Japanese for not producing enough groaf since the ’90s, the on the ground sense of this “stagnant economy” is much less depressing that what I get in the US. Japan seems to have opted for stability over resurgence, and a number of factors serve to aid this endeavor. First, in order to grow, Japan would need a massive injection of cheaper labor (i.e. immigrants), since the conditional immigration of second/third generation Japanese from Latin America just didn’t cut it. But that’s never going to happen. I lived in Japan’s industrial heartland, and dekasegi is still a dirty word there. With few new entrants into the labor pool, and a stagnant (occasionally negative) birth rate, resources are much less strained and wages remain decent relative to the standard of living.

      There is some hand-wringing in Japanese media over the NEET problem as well as the rising prevalence of freelance/conditional employment, but it’s an order of magnitude worse in NA and with a social safety net (medical care in particular) that Americans just don’t enjoy. My Japanese friends would occasionally complain about their prospects, but then I would tell them what the employment landscape is like in the US, and they immediately shut up.

      1. Keith

        With the biased propaganda that masquerades as news these days it is hard to tell what is going on in your own country sometimes.

        Though I think the US and UK are probably the worst offenders here.

        Even the internet provides information that is usually tilted towards one agenda or another.

        It is always interesting to hear from people with direct experience.

        1. Uahsenaa

          Don’t get me wrong, Japan has its problems: the fact that three recent PMs and most of their cabinets are members of an ultra-nationalist, straightforwardly fascist right wing cabal (Nippon Kaigi) meant to synergize business with politics, the ongoing radiation problem in the east of the country, a slow simmering nativism that occasionally boils over into overt racism, etc.

          The Japanese government seems to have learned the lessons of the tumultuous ’20s and ’30s and opted for benevolent fascism, wherein real benefits filter out to the citizenry, over militaristic dictatorships, which many people rebelled against in the early 20th century. Couple that with the last great protest movement of the ’60s, which was brutally suppressed, and you have a populace all too willing to let them get away with it.

  5. Keith

    We have forgotten we had unregulated, trickledown Capitalism in the UK in the 19th Century.

    We actually know what it looks like.

    1) Those at the top were very wealthy
    2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
    3) Slavery
    4) Child Labour

    Immense wealth at the top with nothing trickling down.

    We actually know the beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and child labour.

    To see the wealthy and powerful as generous benefactors ignores the lessons of history.

    We forgot how high paid bankers behaved in the 1920s.

    We de-regulated banks and trusted bankers and they rigged every market they could.

    We removed the 1930s legislation designed to prevent another 1929 and they did it again in 2008.

    We can thank the bankers for reminding us of the necessity of legislation and why it was enacted in the first place.

    There is lots of financial regulation because bankers are incompetent, unscrupulous and entirely without morals, the same as they have always been.

    Personal recollection may not be that accurate, but history is important if you don’t want to keep making the same mistakes over and over again.

    Try a little history and see the problems with today’s ideas.

    The Rich Kids of Instagram are not new but just indulging in the traditional conspicuous consumption and conspicuous leisure that has always been a characteristic of the Leisure Class.

    (The Theory of the Leisure Class: An Economic Study of Institutions, by Thorstein Veblen. The Wikipedia entry gives a good insight. It was written a long time ago but much of it is as true today as it was then. This is the source of the term conspicuous consumption.)

    In the 1960s/1970s we used high taxes on the wealthy to counter balance the trickle up of Capitalism and achieved much greater equality.

    Today we have low taxes on the wealthy and Capitalism’s trickle up is widening the inequality gap.
    We are cutting benefits for the disabled, poor and elderly so inequality can get wider and the idle rich can remain idle.

    They have issued enough propaganda to make people think it’s those at the bottom that don’t work.

    Every society since the dawn of civilization has had a Leisure Class at the top, in the UK we call them the Aristocracy and they have been doing nothing for centuries.

    The UK’s aristocracy has seen social systems come and go, but they all provide a life of luxury and leisure and with someone else doing all the work.

    Feudalism – exploit the masses through land ownership
    Capitalism – exploit the masses through wealth (Capital)

    Today this is done through the parasitic, rentier trickle up of Capitalism:

    a) Those with excess capital invest it and collect interest, dividends and rent.
    b) Those with insufficient capital borrow money and pay interest and rent.

    The system itself provides for the idle rich and always has done from the first civilisations right up to the 21st Century.

    Try a little history and see the problems with today’s ideas.

    1. Keith

      Try a little history and see the problems with today’s ideas ……..

      1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase

      1929/2008 – Wall Street crash

      1930s/2010s – Global recession, currency wars, rising nationalism and extremism

      Einstein’s definition of madness “Doing the same thing over and over again and expecting to get a different result.”

      1. Priest

        Can someone refute these two posts? Because I can’t, and they’re depressing and a little frightening.

      2. Carolinian

        History keeps repeating itself because so much of human behavior is baked into our DNA. One problem with our primitive social “sciences” is their failure to sufficiently account for this. As is often talked about around here, modern economists ofter serve as little more than high priests promoting the interests of the rulers. Money and power have become the thumb on the scale at intellectual institutions such our elite universities. Professors, it seems, are also looking out for number one.

        In the classic sci-fi film The Day the Earth Stood Still the alien visitor threatens to encircle the Earth with flying robots that will zap anyone who commits anti-social aggression that threatens everyone. Given our persistent, history-repeating foolishness this may be the only solution.

        1. Brooklin Bridge

          Perhaps, “with ever greater vengence”, should be added to the end of that sentence, “History keeps repeating itself.” It’s not really an exact repeat – actually, not at all, though it would be hard to argue with the insanity part (and I think your point about being baked into our DNA is well put).

          But we have truly upped the ante or consequences of the “contradiction” we are in the process of slamming into. That is, we seem to have baked in a period of, slamming into, that risks taking us right up to those glorious “end times” depicted with so much un-selfconsious humor in yesteryear’s sandwich boards.

          The consequences of capitalism on a global scale with virtually pandemic corruption mixed in with rodeo style (ride it while you can hang on) management of planetary scale technology (such as carbon and nukes and reactors and resource stripping, rent extraction and economic vice grips locked mercilessly onto whole nations – themselves disappearing under this ray-gun into “corporate regions”). Well, the contradictory “bang” for our buck has potential for being orders of magnitude bigger and more destructive and possibly more permanent than at any (readjustment ) time before.

          Our DNA may look more like a time bomb than a map of our evolution.

      3. Uahsenaa

        I always thought the 1880s/1890s were a better parallel to current events. The panic of 1893 has a great deal in common with the crisis of 2008, in particular the effect of the sudden shock in price of an underlying commodity (wheat then, housing more recently) rippling through financial markets that were heavily dependent upon keeping those prices propped up. I suppose the same is true of 1929 to a great extent, but the culture of overt influence peddling then as now, the backlash of popular movements both right and left, and little d democratic politics in which the nature of finance was openly discussed mirror the present day a little too eerily.

        If you look closely I imagine you might find similar parallels in the ’20s/’30s, but all I’m trying to say is, this pattern has cropped up often enough now, that we already seem to have repeated it as farce.

        1. redleg

          Personally I’m seeing similarities between our current predicament and the French Revolution.
          Huge wealth inequality, debt that couldn’t be paid, an inflexible social stratification, political extremes, pissed off poor people, etc.

  6. jgordon

    Private businessmen also have time horizons that are too short to allow for the private financing and operation of infrastructure, so that again falls to public or quasi-public entities, like utilities.

    Which is not necessarily a positive selling point for large-scale governments and the style of economics that such government allow for. For example, the US would be far better off today if it had never built out an interstate highway system. This thing is an unmitigated evil that takes quite a bizarre cultural/mental framework to see as something useful or good. And it is the federal government that allowed/allows such a depraved culture to effect such twisted ends.

    Intelligence is figuring out how to do something; wisdom is asking if that thing should even be done in the first place. There is a distinct lack of wisdom in US, and I think that lack is illustrated here.

    1. Yves Smith Post author

      The interstate highway system was a military project, not a “help create commercial infrastructure” project. Please do your homework.

      Felix Rohatyn (former investment banker, the most respected one on Wall Street in his day, later the Ambassador to France) wrote a book on the importance and success of major government initiatives… the Tennessee Valley Authority, which brought electricity to much of the South.

      Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

  7. E=A-L

    What part of the definition of capitalism requires government subsidies for private credit creation?

    Please (anyone) defend if you can the following:

    a. Government deposit insurance instead of a risk-free Postal Savings Service?
    b. Legal tender creation by central banks, not for the general welfare only but for private interests, ie the banks and the rich?
    c. Paying interest on the national debt of monetary sovereigns?

    Something is clearly very wrong with our system, I agree, but let’s identify the true culprit(s), eh?

  8. Mickey Marzick in Akron, Ohio

    Instead of rehashing how we got here – looking backwards – why not look forward and ask the following:

    1) To what extent was the “credit spigot” the first putative attempt at a BIG [basic income guarantee] and supportive of MMT within a capitalist framework? Fiat [Let there be] money right?

    A job guarantee after all is just one step removed from BIG as it guarantees a certain level of consumption predicated on wage labor [job]. Remove the latter with the credit spigot and what you end up with is an extended guarantee of consumption that lasted 40 years or more – not a bad run for those who participated in the banquet.

    2) To what extent was the expansion of productive forces underlying this consumption indicative that absolute “scarcity” had been overcome for the majority of citizens living in the advanced political economies of North America, Western Europe, and Asia? Demography – baby boom – played a role in this expansion too.

    Agriculture and manufacturing had advanced to the point that “overproduction” and “chronic excess capacity” became everyday nomenclature. The bane of humanity – absolute scarcity – had been vanquished. Let’s give “capitalism” credit where credit is due. Yet we remain tied to the law of supply and demand when the supply side of the equation is no longer the issue. Doesn’t this render much of conventional economic thinking obsolete? Postscarcity economics is an oxymoron. Let me acknowledge the tremendous cost to the environment along the way before the 21st Century Luddites take me to task for omitting this observation.

    3) So presumably with the “credit spigot” turned off and the resultant drop in demand [austerity] the “capitalists” have resorted to artificially-induced scarcity [AIS] to maintain control over the rest of us. The question becomes political and ideological – the maintenance of a value system predicated on scarcity. After all, without scarcity lurking in the dark recesses of our minds, what incentive is there to produce [work]? How many times have you heard this mouthed by working class stiffs? It’s the “free stuff” you know!

    4) Can capitalism survive/function without scarcity? Or should I say, how does capitalism survive when absolute scarcity has been overcome? What mechanisms must be created and put in place for the value system predicated on scarcity to persist?

    Just the musings of someone in the “rustbelt” who has lived through it …

    1. Paul P

      Don’t disagree, but in giving capitalism its due, keep in mind that the terrible conditions of scarcity were transferred to the periphery while the working class in the North got the benefits of growth.

      1. Mickey Marzick in Akron, Ohio


        Then transference of scarcity to the periphery is one of the mechanisms whereby capitalism has externalized the value system on which it rests? The law of uneven development’s hidden costs?

        But even then, at what point or when does production there outstrip scarcity as well? Brazil, China, and India can no longer be considered backwaters but industrialized countries, each with a significant manufacturing base. It seems only a matter of time when “absolute scarcity” will be overcome in these countries as well. Then what?

    2. susan the other

      That’s a good point. We dread scarcity in a world of surplus. If we can tame capitalism to produce the things we need without overproducing and using tricks like planned obsolescence and some new electronic gadget or app every year and etc. then the resources we use can be better controlled and it will be easier to clean up the environment as well as ourselves. We should acknowledge that not all human work produces a monetary profit. Could capitalism ever adapt to non-monetary gains? Non-profit?

      1. Norb

        The power of technology is concentrated in the hands of capitalists to generate profits. The answer to your question is no. Working within the current system, at best, the profit/rentier class can be forced to compromise on the depth of their rent extraction. But their thinking is always selfish. It is the worldview that must change.

        The question then becomes, how do we build something new? Professor Wolff has been stressing worker self directed enterprises for some time. The idea of co-op’s seem like a good place to start. Current business owners use the rhetoric of cooperative action as a model to base their relationship with employees, but always leave out or shortchange the collective benefits. It is a dishonest system at its core.

        Learning to live without striving for individual profit and thinking more about the collective good is a place to start. Work should center on using knowledge and technology to build a self-sustaining community.

        Networks of self interested factions need to be replaced with cooperative networks.

    3. JTFaraday

      “The question becomes political and ideological – the maintenance of a value system predicated on scarcity. After all, without scarcity lurking in the dark recesses of our minds, what incentive is there to produce [work]?”

      They inculcate feelings of personal inadequacy. Then it doesn’t matter how much you have, you always need to do more, be more, until it issues in self righteousness and the demand that everyone else follow in your wake. “Lean in” etc.

      1. JTFaraday

        I think a lot of these people (maybe not Sheryl Sandberg, who knows) are actually deeply angry (about this). This just further enables the nasty–If I did it, then… blah blah blah.

        That’s why the way beyond this cultural impasse probably means cutting people some slack, not speeding it up in the name of more productivity.

  9. nothing but the truth

    and haven’t even started discussing the financial systems and its “features/bugs” (depending on which side of the FIRE sector you are), rent extraction, cronyism and revolving doors.

  10. Synoia

    As I read the above post, I considered MMT’s sector balances, and considered the private sector as having two sub sectors, the haves and the have nots.

    If the have not subsector has a continual negative balance, then per MMT, the deficit would provoke a collapse of the sector – aka a demand gap.

    The goods not consumed by the have not sector would not be consumed by the have sector, because the have sector does not consume through the likes of Walmart and Tatget, nor can the have sector consume the quantity of good not consumed by the have not sector.

    An interesting test of the MMT theory. In my view a successful test.

  11. Michael Hudson

    I always have the same problem with old-time Volume I Marxists. They talk about the shrinking market for goods and services coming from capitalists not paying wage labor enough to buy what it produces.
    There is nothing here about what Marx wrote about in Vol. II and III: debt deflation. Marx explaind that finance was EXTERNAL to capitalist production and consumption. He also explained how savings and credit grew exponentially, exceeding the ability to pay and diverting more and more income away from production and consumption to the financial sector.
    Marxists (old-time style) criticize discussions of finance for not talking about Vol. I — not seeing that Marx analyzed the overall economic system, not just employment.

    1. James McFadden

      I’d first like to say that I really enjoy your analysis. I read you on counterpunch regularly. I was wondering if you could comment on a few other economists who I’ve been reading. Jack Rasmus writes about financialization (Epic Recession), Steve Keen writes about the underlying contradictory assumptions in neoclassical economic theory (Debunking Economics), and David Harvey writes a 21st century analysis of Marx (17 Contradictions and the End of Capitalism). Could you suggest some other books or authors to help fill in my knowledge base? I have your latest book and will read it early next year – but I thought you might suggest some additional reading. Some of my effort is in preparation for tackling Marx – of which I’ve only read some in an economics history class. I have a PhD in physics – so I find the math generally easy. I’m trying to develop a sound understanding of the problems of current economic thinking –useful in grass root efforts and/or public education.

    2. redleg

      People have a hard time, to be generous, comprehending systems. I’m not sure if that’s because people can’t grasp the scale of systems (time, space, degrees of freedom, etc.), or if it’s related to the ever increasing emphasis on specialization over generalization.

  12. susan the other

    I can almost hear Richard Wolff saying this. I like his straight talk about there being no way to put the mangled freight train back on the twisted tracks. I agree with that. Talk about getting “back to normal” or back to a “healthy” economy just makes me despair. And Janet’s normal interest rate as calculated over the last disastrous 50 years? If we want to have a strong currency we’re gonna have to make our economies and capitalism itself resilient. To have a functioning economy we can’t tell everybody and their dog to go on out there and become an entrepreneur. That’s so nutty. We only need a few entrepreneurs, ones that improve civilization and are socially progressive. We need a modest amount of modestly profitable capitalism. The rest of our world should be a collective endeavor. Society must decide how to live and how to salvage the mess we have made and society can do it because we are sovereign. We just have such a hard time with the whole idea. I keep thinking about the town in Denmark that voted to spend 80% of their income in taxes to provide for all their needs and to keep only 20% for discretionary spending. I would think a system like that might never run a sloppy surplus and would get the necessities taken care of responsibly.

    1. jrs

      people might enjoy their 20% discretionary spending much more anyway, if they were not looking over their shoulder worrying about necessities (if they really should be putting the latte money in stocks for their retirement).

  13. kevinearick

    Social Science Ghettos

    Labor is not defined by others. As crazy never failed to say, the complexity is misdirection make-work.

    Teach your kids to read, write, add and subtract, and to appreciate their imagination, before subjecting them to the public education propaganda machine. And get yourself a competent Pediatrician to navigate the nazi healthcare breeding system, before you start having babies. Female CPS workers with no skills don’t get paid $60k to produce poverty by accident.

    Humans studying humans is a short, shorting the brain into self-obsession due to experimentation bias, bias confirmation as science, which is about as dumb as it gets, paying people to see what you want them to see with their own debt, to build time duration ghettos. The law simply protects and serves the law, with stupid human behavior as the output, feeding more of the same. Social science promotes the middle class to ignore nature and adopt increasingly absurd rule-based compliance, in a positive feedback loop.

    History is always the same sh-show. Capital pays labor to build a temporary bridge to the ‘promise land’ as defined by capital. Then capital builds a middle class to cut off labor’s abutment, and cuts off its own, leaving the middle class stranded. So stranded, the middle class consumes itself, from the bottom up, calling the bottom labor, as it was taught by capital. In the current iteration, robots are capital’s latest salvation, which makes absolutely no economic sense, except to the ivory tower talking heads.

    For generations now, public education, paying itself in primary debt, has been taking the smart kids not controlled by the master-slave linkage and placing them in the dumb kids class, defining the process as equality. Obviously, there are several problem-solutions with this method. Smart kids aren’t stupid and the kids defined as dumb by the system aren’t necessarily dumb. The result is like the inverse of prison, smart teaching smart to get smarter, and dumb getting dumber accordingly.

    The problem-solution of Liberty is its definition. Most view it as liberation – from nature, from government, from marriage, from whatever, including their own sex, all of which are counter-productive, a poor foundation getting the majority exactly nowhere, faster and at higher cost. And capital is just smart enough to supply the money, so long as the participants choose real estate inflation, capital control, with small-minded dictators everywhere, feeding small-minded dictators centrally.

    The American Dream is to be slumlord to the world, with an increasing share for the level of participant compliance. The only problem with this little scheme is that the military backing it up was corrupted long ago, and the rest of the world has already seen this sh-show, many times. At least Russia is pretending to pay its bills, has plenty of energy, and has drawn a dumbed-down America into its sandbox, not that there is any real difference between governments other than timing in the boom/bust cycle.

    People aren’t being replaced by current technology because the technology is SMART. People are being replaced because they have chosen to dumb themselves down faster than the technology. Their jobs are just too stupid to exist, and the technology closing them out cannot withstand natural variability, because it’s built on the same stupid assumption, a bipolar short-circuit.

    AI is not rocket science once you get yourself on the other side of the mirror. You have sensors gathering data for a memory match, which is a time and location frame of reference, subject to gravity spacetime relativity, which is analyzed to reduce constants with abstraction into functions and a remainder, which is the unknown, fed back into the loop, creating a negative feedback loop in a conscious human being. Not only are robots far more expensive on the front end, but if you think about it, they are also far more expensive to feed, clothe and house.

    Instead of chasing legacy capital, turn around and walk right through that mirror, the earlier the better. That brain in your head is an antenna, with as many dimensions as you care to build. The ‘error’ was populating the dc channels with humans, and having them chase the machines isn’t any brighter.

    Politics is a popularity contest, voted upon by those who want it to be a popularity contest. Just because you cannot physically see a sensor doesn’t mean that one isn’t there, or that you cannot cultivate one. In AI, you are far better off reinventing the wheel.

    If you walk onto a job with more potential than the existing pool, you can expect others to gang up against you, to make your job harder, with pleasantries; that’s what the ivory tower economists do. But if you think about it, they are doing you a favor. Unless you want to be popular, the least common denominator multiplied by an increasingly redundant population, politics is neither a skill nor a higher calling.

    Defining a government that cannot go bankrupt, printing and buying its own digital paper to maintain demand, through incorporation for the purpose, doesn’t make it viable. Only you can do that, by discounting accordingly. The central banks just translated the interest differential axis, changing nothing.

    They can deny you tools, licenses, certifications, an apprenticeship, whatever, but they have to be brain-dead to do it. Knock on another door. Build a clock with separate speeds as your interrupt mechanism.

    Merry Christmas

  14. James McFadden

    Richard Wolf focuses on mechanization, and/or new labor supplies, creating pressures for cheaper labor and eventually leading to a supply-demand contradiction as Marx envisioned in Vol I. But this contradiction, in principle, might be addressed by keeping wages higher and profits lower, but with acceptable gains to keep capitalists investing, by implementing a minimum wage or wealth redistribution, coupled with creation of new industries and markets to take up the excess labor and/or by reducing the work week. Such mechanisms might work in the short term if growth was positive (so capital gains could be realized) and financialization was kept under control by regulation. This seems to be the Keynesian argument for regulated capitalism in order to stabilize the contradiction he outlines. However, the larger contraction is the requirement of growth in a finite world. That growth can’t be sustained. Growth means more products and services. More products and services will require more energy and resources, and therefore produce greater and greater demands on the environment, causing pollution, climate chaos, acidification, and destruction of nature’s ability to absorb our waste. It seems to me the bigger contradiction is the growth versus environment contradiction. When we decide that growth must be sacrificed to save the environment (or it is forced on us by environmental collapse), then capitalism will also end. You can’t have sustainable capitalism which demands growth to generate profits. The choice is between capitalism with growth and the eventual environmental collapse, or another economic system (and there are an infinite number since economies are just artificial man made rules) that creates a sustainable balance with nature where growth is zero. Of the 17 contradictions outlined by David Harvey, this seems to be the most important.

    1. Julia

      Exactly. You summarized it well. That’s the problem. Capitalism is not sustainable. Nothing will improve until we acknowledge this inconvenient truth and plan another system.

  15. john c. halasz

    Small correction: The “Treaty of Detroit” referred specifically to the 1950 contract between the UAW and General Motors, which then set the pattern of the other auto corps. and more broadly for the working class in general. It achieved it’s full flowering in the 1960’s, because that was a boom time for the U.S. economy in general with full employment, rising productivity and a long recessionless expansion.

  16. readerOfTeaLeaves

    Labor arbitrage + decades of M& A + decades of ‘Greenspan Put'(i.e., easy credit) = derailment.

    It’s not rocket science.
    Thank God for NC to explain the particulars!

  17. Paul Tioxon

    In Marx’s formula, M-C-M’, Money which is invested to produce a Commodity which is then sold at a profit, M’, is the period of agricultural and then industrial capitalism. You needed to organize society to produce something that could in turn be sold. At the point of financialization of the economy, money itself becomes the commodity and the whole production process requiring the labor force of society as a whole is bypassed. M-M’ There is no need for inputs all along the supply chain of manufacturing which require labor to sell money. Hence there is little need for labor as compared to the era of mass manufacturing and mass consumption.

    Money as a credit card, auto loan,student loan, fix your teeth loan, furniture loan, home loan, pool loan, home improvement loan, boat loan, store charge card at Tiffany’s with easy terms and no money down, first payment not due til 2525, all you do is sign and drive away! We no longer have to dig money out of a mine, coin it, transport it, store it, it is the new form of business to produce profits and then put it out again to work. Larger and larger placements are needed. Public school systems for sale, turnpikes, parking meters of major cities, public pension funds, ports, parks, wildness preserves, public buildings and bridges all for sale due to the need to place $Trillions in cash hordes at home and off shore.

    There is less and less need for human labor under a capitalism that has automated manufacturing to use the smallest amount of people possible and has transformed into FIRE based economy. Construction booms here and there can keep some people busy, but hardly the numbers needed for full employment. Less than 1% produce the food, less than 10% the stuff we use, where does that leave the rest of us?

    Capitalism in our part of the world is the politically dominant system of governance, where the market is served by the state and its people to the advantage of the few who benefit from writing the rules of the market as the sole decision making institution for the redistribution of the surplus wealth to themselves. That is what capitalism is. The state and the market joined to govern the social order, with all of the resources directed to serve the market. China has not stolen anything, it is going through a historic phase of development which once installed, will move onto the next historical phase where the labor of its nation will no longer be needed to be super exploited in order to build the prosperous standard of living. The Communist Party of China makes 5 year plans and reviews them and then writes another 5 year plan. The market is placed in service to the state under the rule of the CCP. It is their interpretation of Marx that they have decided to take the capitalist road, but that road is not the destination, but the necessary journey to prosperity. We will see who will be better off. How much they play the game of financialization may determine whether or not they believe that they can use the material development that is the outgrowth of capitalism to achieve a stable state requiring maintenance and not so much development to preserve a satisfactory standard of sustainable living.

  18. Ben

    May be capitalism should move closer to communism and vice versa, we may then have a more optimum economic environment. In capitalism, the lopsided concentration of huge majority of wealth in the hands of too few is a very glaring defect of capitalism.

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