Samuelson and the cycle etc.

[Jurriaan Bendien <quark19591@xxxxxxxxx>]

As regards Paul Samuelson on the business cycles, as discussed previously, what he actually said was:

"The National Bureau of Economic Research has worked itself out of one of its first jobs, namely business cycles" (NBER Research Colloqium on "The Business Cycle Today", 24 September 1970).

In his textbook Economics (4th ed., 1958, p. 360) he wrote: "Neo-classical synthesis: by means of appropriately reinforcing monetary and fiscal policies, our mixed-enterprise system can avoid the excessses of boom and slump and can look forward to healthy progressive growth".

A similar thought was offered by Sir Roy Harrod, of the Harrod-Domar growth model fame, in his book Money (1969), pp. 188, 190.

The occurrence of slumps in 1973-1975 and 1980-82, and the halving of the real GDP growth rate since the 1970s suggests Samuelson may have been too hasty in his judgement.

Question remains whether business cycles do really exist. In a certain sense, they are an econometric artifact produced by observed repetitions of peaks and troughs in real economic growth. The idea that economic fluctuations are "cyclical" however implies that they are recurrent processes, and recur in a specific temporal sequence or pattern of phases which is causally or stochastically explicable/predictable, perhaps in terms of periodic overinvestment and underinvestment, and in terms of the renewal of fixed capital assets.

But whatever the case, it's clear that real economic growth does fluctuate markedly, especially if we remove from GDP those components which will always tend to flatten out the trend, or if we look at the trend in real gross fixed capital formation in the goods producing sector.

The classical Marxian argument is that such fluctuations are unavoidable because a perfect adaptation of investment to demand conditions is impossible under capitalism, due to the existence of autonomous and competing private enterprises which do not coordinate their activities and aim to increase their market share to maintain profit returns or increase them. At most monetary policy, state investment and the taxation regime could mitigate those fluctuations.

However, to the extent that "globalisation" means increased privatisation, a reduced role of the state, credit-based demand growth and increased exposure to the vagaries of the world market, one could predict that severe economic downturns (like the Mexican crisis, the Asian crisis and the Argentinian crisis in recent times) are even more likely in future, since there are less economic "buffers" that could shield countries from slumps.

As a digression, in his visionary pamphlet on imperialism, Lenin did not deny that different regions of the capitalist economy could still experience rapid growth; however, he saw the growth pattern as becoming more and more uneven in space and time, corresponding to greater extremes of socio-economic inequality. That appraisal seems to stand up rather well in retrospect - as illustrated by the fact that while the USA, West Europe and Japan boomed in the 1990s, at the same time a dozen or so countries experienced sustained negative growth in real GDP, and the fact of the increased disparity of disposable buying power in the world noted by the UN Human Development Report among others.

The contradiction seems to be that the greater the degree of integration into the global market, and the higher the level of debts, the lesser the efficacy of state intervention becomes to mitigate sharp fluctuations in investment and demand, particularly given excess capacity in production.

This leads not only at attempts at international co-ordination of state policies, but also suggests that eventually the policy pendulum might swing back more to greater protectionism, to safeguard markets, as well as greater market segmentation.

In addition, increased privatisation and deregulation of trade increases competition rather than lessens it, implying a reduced possibility for overall economic co-ordination of any kind, and a reduced capacity to create additional employment. The countertrend is the growing market monopolisation of giant corporations - the Fortune 500 have a combined gross income of about $14.8 trillion, nearly half of world GDP which in 2002 was valued at $32.3 trillion. Yet they remain largely nationally-based within the framework of international competition, and themselves employ "only" 45.9 million people. 

All in all, it looks to me like sluggish economic growth, increasing global unemployment and increasing socio-economic inequality are set to continue in the world economy in the foreseeable future. 

All I need to do now is to take care of my own future :-)

Jurriaan

 

 

 

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