David Seaton's News LinksI get a feeling that my last post,"Annus horribilis... and you are pretty cute yourself" may have been so chock full of goodies and long winded quotes that some of my readers may have had a bit of trouble seeing just what I was driving at, so today I'll try to be more concise and to the point.
I am coming to believe that at the bottom of the crisis is the creeping impoverishment of the once universally envied American middle class; this impoverishment has been brought on by an American lead revolution in productivity, which has made American workers themselves redundant except as consumers. This process resembles the flight of a legendary bird that flying in ever tighter concentric circles, finally flies up its own behind and disappears.
The communications revolution of the Internet, which makes it possible for Indian and Bangladesh knowledge workers to do the back office work of the American multinationals and for Chinese factory workers to produce most of the world's hard goods at amazingly low prices, has left the American middle class with only the universal role of "consumer of last resort". How does that play?
Since today's Americans are no longer much needed for useful work, they have to be loaned money from the earnings and savings of those around the world who now do that real work, in order for them to be able to buy the things those workers and savers produce. If Americans ever stop borrowing money to buy all of this, or if other people stop lending it to them, then the world will collapse... Or so the story goes. That is about as an encapsulated summing up of the situation as you are likely to find anywhere.
First, lets look at the impoverishment part. In my last post I quoted The Atlantic's James Fallows at length. Today I'll limit myself to one paragraph:
In my opinion those are the different forces that are pulling and tugging the situation into one shape or another and what the final shape will be depends on what or who tugs the most.
Optimism or pessimism?
If you think it would be great if things had stayed the way they were, then you should be pessimistic. If you think things sucked the way they were and would like to see things change, then you can be optimistic. Things are going to change anyway and, who knows, they might end up better. DS
I am coming to believe that at the bottom of the crisis is the creeping impoverishment of the once universally envied American middle class; this impoverishment has been brought on by an American lead revolution in productivity, which has made American workers themselves redundant except as consumers. This process resembles the flight of a legendary bird that flying in ever tighter concentric circles, finally flies up its own behind and disappears.
The communications revolution of the Internet, which makes it possible for Indian and Bangladesh knowledge workers to do the back office work of the American multinationals and for Chinese factory workers to produce most of the world's hard goods at amazingly low prices, has left the American middle class with only the universal role of "consumer of last resort". How does that play?
Since today's Americans are no longer much needed for useful work, they have to be loaned money from the earnings and savings of those around the world who now do that real work, in order for them to be able to buy the things those workers and savers produce. If Americans ever stop borrowing money to buy all of this, or if other people stop lending it to them, then the world will collapse... Or so the story goes. That is about as an encapsulated summing up of the situation as you are likely to find anywhere.
First, lets look at the impoverishment part. In my last post I quoted The Atlantic's James Fallows at length. Today I'll limit myself to one paragraph:
Half this country's households live on less than $50,000 a year. That sounds like a significant improvement from the $44,000 household median in 2003. But a year in private college now costs $83,000, a day in a hospital $1,350, a year in a nursing home $150,000—and a gallon of gasoline $9. Thus we start off knowing that for half our people there is no chance—none—of getting ahead of the game. James FallowsNow, lets have a quick look at how the "working poor" can consume all they must consume in order for the world to survive:
Today’s global crisis was triggered by the collapse of the U.S. housing bubble, but it wasn’t caused only by it. America’s credit excesses were in residential mortgages, commercial mortgages, credit cards, auto loans and student loans. Nouriel RoubiniHere follows the Financial Times chief economist, Martin Wolf summing it all up and projecting what will probably happen:
What makes rescue so difficult is the force that drove the crisis: the interplay between persistent external and internal imbalances in the US and the rest of the world. The US and a number of other chronic deficit countries have, at present, structurally deficient capacity to produce tradable goods and services.(...) (This)means that US rescue efforts need to be big enough not only to raise demand for US output but also to raise demand for the surplus output of much of the rest of the world.(...) Now think what will happen if, after two or more years of monstrous fiscal deficits, the US is still mired in unemployment and slow growth. People will ask why the country is exporting so much of its demand to sustain jobs abroad. They will want their demand back. Martin Wolf - Financial TimesIn plain language, the US government is going to print a lot of money (lots and lots) and hope that it gets into the hands of American consumers so that they can buy Chinese goods in the hopes that the Chinese don't sell off their US treasury bonds and destroy the dollar (think a hundred dollar cardboard cup of coffee in McDonald's, think granny spending her month's pension on a bucket of KFC). If this doesn't work, Wolf thinks the results will be catastrophic:
Once the integration of the world economy starts to reverse and unemployment soars, the demons of our past - above all, nationalism - will return. Achievements of decades may collapse almost overnight.What I don't have clear is exactly whose "nationalism" it is that Wolf is talking about. As far as I know Americans are, and always have been, very nationalistic, except that they call themselves "patriotic", and only when other people are patriotic do they call it "nationalistic"... I confess that I fail to see much difference and since Wolf is not American, I'm not sure what he means.
In my opinion those are the different forces that are pulling and tugging the situation into one shape or another and what the final shape will be depends on what or who tugs the most.
Optimism or pessimism?
If you think it would be great if things had stayed the way they were, then you should be pessimistic. If you think things sucked the way they were and would like to see things change, then you can be optimistic. Things are going to change anyway and, who knows, they might end up better. DS
3 comments:
Excellent analysis.
This is precisely the atmosphere that is needed for demagoguery to flourish, for the search for scapegoats to expand, for the deliverance of the constructs of wishful thinking to be put in place.
I can't imagine how any of that would be a good thing for the first world or developing world inhabitants. However, way out on the perimeters of the cash and flash worlds, where no one has been bothering to exploit or inflate,
all will be relatively better, even greater than ever, if we use a metric of relativity.
As all curves arc to zero, those always at zero are equalized.
That may be the only improvement we see. It seems rather Carrollian to me.
On Marx, productivity growth, and what I do.
I disagree that there has been too much productivity growth. I don't think there was enough real productivity growth.
If I understand Marx's economics, he thought that capitalists' desires for a constant rate of return on capital would necessarily lead to a lowering of income to workers. Assuming no growth in income, as capitalists accumulated more capital, the only way the rate of of return on capital could be maintained would be by increasing the capitalists total share of income - ie by decreasing the laborers' share. Ironically, this describes a pre-industrial world.
This ignores growth in productivity. If there is technological change sufficient to increase productivity, profits and wages can rise simualtaneously. Class conflict will be over share of the increase in the pie, and not the share of a static pie.
What is productivity anyway? Labor productivity can be looked at in two ways: unit productivity and dollar productivity. (Productivity of other factors, such as land or equipment can also be measured) An increase in unit productivity means that the worker is producing more widgets per hour. An increase in dollar productivity means that the ratio of the value of the output of the worker to the cost to the employer of his labor is rising.
Productivity in either sense generally rises if the worker has more capital in the form of equipment employed. The farmer can produce more with a tractor than a mule. The auto worker overseeing several robot welders is more productive than before the plant fully automated.
However, productivity growth has been declining in America broadly over the last forty years. It went up in the '90s which I think may have been in part mismeasurement and did not change the long term trend.
Which brings me to what I do. I, like most Americans, am in the service economy. I don't produce things, I read accounting documents and legal documents and produce reports. I bill by the hour worked. It is hard to measure any productivity increase in what I do. Investment in a new computer program won't change the number of hours billed. The same goes for all the restaurant workers, barbers, and all other service economy workers.
The long term decline in American productivity growth conicides with the decline in American manufacturing.
Chinese workers are NOT more productive than the American worker in terms of units produced per hour. I have heard it said that they are about a third as productive. They are less educated and have less capital equipment at their disposal. However, they are paid one tenth as much, so the ratio of output to labor cost is much higher for the Chinese factory worker - they are more productive in that sense. Globalization raised productivity not by technological advance but by lowering wages.
On the rise of American productivity in the '90s: I have heard some reports that much of it was due to counting as American production what was really the production of overseas subsidiaries. My other feeling is that a lot of the increase in communications technology enabled supply chain globalization - ie sourcing in lower wage countries.
By the way, my understanding is that French and German workers are more productive than American workers. Since wages are higher, and the cost of layoffs to the firms much higher, firms will invest more in capital equipment, and hirer fewer workers. Until recently, America had lower unemployment and lower wages than Europe; American firms would invest in less capital equipment than European firms because they had cheaper (and easily fire-able) labor.
So we are back in a Marxian no productivity growth world. He said this would lead to recurrent crises, as the workers could no longer afford to buy the goods manufactured.
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