Re: [lwside1] False prosperity of the 1990s...

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

The theme of Thomas Frank's new book is not profound, but it is timely.
I should not comment on the book since I have not read it, but I can comment
on the review, as it summaries the book's theme.

Ever since the 2000 Presidential Campaign reached its torturous finality, it is amazing though not surprising that the reports on the economy have suddenly turned pessimistic.  I have already commented on the politics of recessions which may account for this sudden change.

Frank's theme of the uneven distribution of wealth is part of the rising populism that has been evident for more than two years, coming to a head at the Seattle anti-WTO protest. Now with the recession scenario forcing itself by election politics into popular awareness, the press is headlining books that offer some easy explanation on how we got ourselves into this mess.

Of course, income disparity and unequal distribution of wealth are part and partial of capitalism.  They are the necessary ingredients of capital formulation.  Social morality aside, as Rick Ackerman rejects it as poppycock, these characteristics are at one the strengths and weaknesses of capitalism.  The strength are obvious, they make capitalist productive efficiency possible.  The weaknesses are less obvious because the entire profession of economics exist mostly to made these weaknesses obscure with smoke and mirrors.

Two effects of these weaknesses are stubbornly recurring:  the business cycle and the need to sustain consumer demand.  The trouble with maximizing profit is that its success leads to a decline of purchasing power, which in the age of mass production, the system cannot afford.  The question then becomes how to make capitalism leave enough crumbs on the table for the masses so that new capital formation will continue to be needed, which economists define as growth. 

Both Keynesianism, Monetarism, Supply-sideism, Institutionism, Trickling-downism and what have you, while they differ on the how question, all operate on the belief that the wealth mal-distribution and income disparity is bad for the capitalist system, that there is a declining marginal utility in rejection the labor theory of value.  The field data are now coming in to demolish the deniability of the fact that in market economies, demand is king, that Says Law (supply creates its own demand) lead always to oversupply in a world full of hunger.

The whole world is trapped with overcapacity and the people actually producing the stuff cannot afford to buy them, while the people reaping in all the profit do not need them.  Its the all the books are safely back in the library syndrome, the dream or nightmare of the librarian, the equivalent of all the money safely back in the bank.  Production needs to be consumed.  Capitalism structurally conflicts with this simple truth.  Throughout the history of modern industrial capitalism and later financial capitalism, the system's very diet: surplus value (capital), needed to seek new markets rather than paying its workers enough to consume what they produce, a ruinous idea for capitalists.  This formula lead to colonialism and imperialism (Hobson/Lenin) and after the Cold War, globalization, which managed to absorb surplus capital in new markets to avoid direct redistribution to the working population in the existing market.  Instead of pay raises, workers in the Core are awarded with low priced imports while workers in the periphery are organized to produce under plantation conditions and at less than subsistent wages.  Morality aside, this scheme structurally exacerbates the oversupply dilemma.  Keynesianism is on target when it claims that high wages and benefits is the only long term salvation to any capitalistic system.  It is utilitarianism, not moralism.

Frank's new book, for a 35 year old author, is not profound, but it is not harmful.  There is immaculate logic to cut the little guy a better deal, if the US wants to preserve its unique system for a few more decades.  I am not sure that Henwood's Wall Street is that much better.  Henwood's theme was that Wall Street was not effective in its claim of efficient allocation of capital.  But Henwood is really shadow boxing.  Wall Street, a capital formation machine, never made that claim.  Everyone I know on Wall Street acts for the immediate good (profit) of his/her portfolio whatever the consequences.  If it is profitable to promote communism, Wall street will promote communism, or religion, or health, or birth control, or funerals, what have you. The people who made that ridiculous claim: that capital market efficiently allocation capital to where it is most needed socially rather than highest return, are not on Wall Street but in conservative think tanks and university campuses and editorial offices.  The concept of "highest and best use" in business has nothing to do with social priorities. That is why every government has a responsibility to design and regulate the game of capital formation toward the social good.  And only government has the authority to meet this responsibility.   

The US is moving toward economic populism not because it has suddenly found a new conscience, but because the external reserve of aggregate demand has been exhausted.  There is no other alternative beside recharging aggregate demand by drastically increasing the purchasing power of the masses, not through debt, but through income.

Henry C.K. Liu

Rick Ackerman wrote:

 At 04:04 PM 12/21/00 +0000, you wrote:

http://www.nytimes.com/2000/12/21/business/21ANTI.html

Frank captures the dominance of the pro-business, market-dominated
mentality of the boom of the LW downwave, which is not characteristic
of the LW depression during which such notions are widely
challenged.

The "false prosperity" Frank writes about is "false" in the leftie, New York Times sense -- i.e., the supposed prosperity was not sufficiently "inclusive." Putting such poppycock aside -- vacationing assembly-line workers do, after all, take their families river rafting in Colorado -- what is truly and most significantly false about the 1990s boom is that practically everyone has mistaken inflated share prices for real wealth. Incidentally, Doug Henwood, editor of The Left Business Observer and author of "Wall Street," writes in the same neo-Marxist vein as Frank, but better.

RA