RE: [Pen-l] Obituary for Paul Phillips

[Louis Proyect <lnp3@xxxxxxxxx>]

> Paul Phillips was one of the early members of this list.  He was not
> someone who flooded the list with messages, but what he wrote was always
> valuable.  His knowledge of the Balkans and the Canadian economy brought
> an important dimension to this list.  Paul will be missed.
>
>
> Michael Perelman

When I first subscribed to PEN-L back in 1992, it took me a while to 
adjust to the list culture and often had ridiculous flame wars over 
slights real and imagined. I always remember how calm, civil and wise 
Paul was during the most turbulent occasions, involving hotheads such 
as myself and some others just as bad. Whenever I came back to PEN-L 
after a cooling off period, it was motivated in part by the presence 
of Paul Phillips. Here's a post of his from March of this year. 
Considering the state of the world, his contributions will surely be missed.

---

Tom is quite right to challenge the prevailing view that we are not 
already witnessing many of the manifestations of depression that were 
the hallmark of the depression of the 1930s. (By the way, I wonder 
why no one has mentioned the 'great depression' in Britain after the 
financial crash in 1873 until circa 1896?) Still, that is not my 
point. We will not relive the depression of the 1930s for a number of 
reasons that have been mentioned on this list. But, equally, we will 
not relive the recovery of the '40s, '50 and '60s. The whole 
discussion of Fed and US gov't policy that I see in the financial 
press and on the media and even see on this list seems to me to be an 
Alice in Wonderland dreamscape because it assumes that once we settle 
the subprime debt problem and get the housing market back on course 
and get consumers buying (on the cuff) again, the economy can resume 
its upward and onward course without major deviations from the path 
of the last half-century. Nothing could be more delusionary because 
it ignores several immutable facts:
global warming, peak oil, peak water, peak food (and other 
commodities), overpopulation, deforestation, etc. etc.

Let me be more explicit. The 1930s were, as Keynes clearly pointed 
out, a period of insufficient demand, and indeed the whole canon of 
Keynesian thought pushed for supplementing aggregate demand with 
government expenditures, tax cuts, investment incentives, 
redistributive transfers ? anything to increase C + I + G + (X-M) in 
the classic Keynesian formulation. But fundamental to this 
prescription was the underlying understanding of insufficient 
aggregate demand relative to excess aggregate supply. Many Marxists, 
including our Jim, attribute it, at least in part, to an 
'underconsuption undertow' resulting from an increasingly unequal 
income distribution which robbed the working class of the ability to 
consume. One should also, of course, mention the collapse of 
international demand that resulted when Germany's access to borrowed 
funds to pay Britain and France its war reparations were cut off. 
Certainly, in Canada's case, it was the collapse of export markets 
for our commodities, in particular, grains, which triggered the depression.

The 2nd World War 'solved' the problem for North America by creating 
excessive aggregate demand ('military Keynesianism') but, what is 
readily apparent, is that this massive increase in aggregate demand 
(gov't expenditures approaching 50% of GNP) was relatively easily met 
with existing resources and capital stocks. That is, there was 
massive excess capacity in both capital and in commodity resources. 
There was some rationing and inflationary pressure but, in general, 
macroeconomic balance was maintained and, when the war was over, 
capacity was switched to consumer products ? and to capital goods to 
restock Europe --with relative ease. Productivity increase prompted 
by the war, unions and the 'labour-management accord' meant that for 
the majority industrial workers, income increases were sufficient to 
absorb the increased output of US industry and to the extent it was 
not, the government expenditure on the military for the 'cold war' 
sufficed. Hence the 'golden age', otherwise known as 'mass-production 
for mass-consumption.'

However, this was coming to an end in the late 1960s. Though much of 
the analysis of this period stressed the re-emergence of excess 
capacity or, the other side of the coin, falling profits, little 
attention has since been paid to another phenomena that caused 
considerable comment among post-Keynesian economists at the time, the 
secular rise in real commodity prices. Though the increase was fairly 
widespread, it was the rapid jump in oil prices in 1973-4 accredited 
to OPEC that caught the attention of most. Over the next half decade 
or so the battle between capital and labour over who was to absorb 
the cost of oil rents paid to the mid-east oil barons resulted in 
inflation which again accelerated in 1978 with the second oil shock. 
This necessitated, from capital's point of view, the destruction of 
labour's countervailing power and the virtual destruction of the 
labour movement, at least in the capitalist surplus value sector. 
This was accomplished by monetarism and the severe recession of the 
early 1980s. It is no coincidence or accident that real wages have 
remained stagnant (or declined for the lower waged and minimum waged 
workers) since the mid-1970s. Family wages have increased marginally 
entirely due to increased female participation and longer hours 
worked by both men and women which allowed consumption to increase 
even as income distribution became more and more unequal.

The '70s seem to me to be a kind of pivotal decade in the post-war 
period. As mentioned real commodity prices began to rise even before 
the OPEC oil crises, real wages peaked and began falling, Bretton 
Woods was abandoned, the unions entered a secular decline in the face 
of a monetarist-neoliberal response to stagflation. At the same time 
Ehrlich published his "Population Bomb" (1968) and the Club of Rome, 
"The Limits of Growth" (1972) which highlighted for the first time 
since Malthus the physical resource limits to economic expansion and 
population growth. Malthus' prediction was countered by colonial 
expansion opening up the food resources of the new world. Ehrlich's 
and the Meadow's projections were countered by North Sea and other 
non-OPEC oil discoveries, the 'green revolution' in agriculture (made 
possible by the expansion of fossil fuel availability) and a renewed 
expansion of mineral discovery and development. This made possible 
the demand-led recoveries from the '81-'83, '91-'94, and 2001-'02 
recessions based on easy credit and monetary expansion and 
ridiculously low prices for oil.

These conditions have changed since 2002. Oil and commodities are no 
longer in elastic supply (ie real commodity prices are rising along 
with resource rents redistributing income from resource poor 
countries which now includes the United States to resource rich 
countries and regions) and the 'green revolution' is failing, in part 
due to global warming, a growing shortage of water, soil degradation, 
rising resistance to pesticides, herbicides, and the rising cost of 
fossil fuel based fertilizer.

This implies that we can not expect a Keynesian 'demand side' 
solution to the current slump/crisis nor that we can 'grow' (invest, 
consume) our way out of a recession-depression. It also suggests that 
any longer term solution must involve both a declining population and 
a major redistribution of (a declining) GDP, as well, of course, of a 
major change in our 'style' of living necessary to offset the 
increase and impacts of global warming, never mind of peak oil.

Any short term 'fix' of credit and consumption expansion will 
immediately run up against rising real energy (and food) costs, 
inflation, rising emissions (and hence climate change) and, even in 
the short run, increased shortages of water (it takes thousands of 
litres of water to produce one litre of ethanol; 3 to 6 barrels of 
water to produce one barrel of synthetic crude, etc.)
In view of these realities, I think we have to look at a quite 
different family of policies to get us out of the current recession. 
What is perhaps the most disheartening is that in the current 
presidential primary debates, one hears next to nothing from Clinbama 
indicating even an awareness of the problem. (This is not to say that 
in Canada there is any greater awareness. The Harper conservative 
government has its head firmly buried in the sand with its backside 
facing south.)


Paul Phillips


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