Economic matters and a sort-of book review
Just as the experience of the Iraq War has strongly affected -- some might say radicalized -- many young people's approach to American politics, so also the coming fiscal year promises to teach the uninitiated an economic lesson or two.
I certainly can't accuse John Liberty of failing to report to us on this looming crisis. However, I will try to relate my own recent experiences and research in a more introductory way. I've tried over the last month or so to familiarize myself with economic news, and in a few specific cases this has meant reading article and book-length pieces on the history and trajectory of the current economic system. A typical day means checking the WSJ, the FT, and several high quality economic blogs: Krugman, DeLong, and Thoma, for example. Also, despite its obvious radical leanings, and thus (dis)colorations, the World Socialist Website provides consistent, understandable analysis. Other good leftist perspectives include this piece by Joel Geier from the latest International Socialist Review and this interview in International Socialism.
By far the most helpful source has been the late Andrew Glyn's Capitalism Unleashed: Finance, Globalization and Welfare, his last published work before his untimely death. Lest you think this is merely a left-wing screed, it received high praise from the FT's own free market maven Martin Wolf, who called it "lucid and penetrating."
While I encourage you to read this short book yourselves, I can touch on some of its most salient points here, although I've already returned it to the library and so lack specific figures in many cases. Glyn, like many economists, locates a "Golden Age" in the post-WWII era of the '50s and '60s, when unprecedented growth was combined with high worker benefits and regulatory practices in the advanced capitalist economies (less so in America, a notorious outlier as far as "welfare states" go). When the "stagflation" of the 70s set in, it was Paul Volcker, Jimmy Carter's Federal Reserve Chairman, who found the solution in 1979 which would affect future practices: ratcheting up interest rates, which while causing a recession managed to end inflation.
Since the productive "Golden Age," capitalists and governments have sought ways to revive weak profit rates through what has come to be called "neoliberalism": the deregulation of markets, weakening of labor unions and dismantling of the welfare state in many cases. Increased growth and job creation were the promises made to the working and consuming class, but Glyn shows how in many cases this has not gone according to plan. Furthermore, European countries, particularly the Western and Northern states, continue to confound predictions and expectations by retaining higher welfare standards. As even Martin Wolf is shown to admit in one citation, the high taxation levels necessary to maintain welfare policies have not necessarily caused capital flight or lack of competitiveness. Also, the more "liberal" (i.e. free market) economies of the US, UK, Australia and New Zealand experience much higher levels of poverty, even when their economies are booming and European nations are in recession, and thus periods of high unemployment. The U.S. also actually lags behind such countries in terms of social mobility, which goes against much American rugged individualist ideology. The UK has experienced an even greater decline in class mobility. Of course, these trends, particularly the high levels of social security in Europe, could and probably will be affected by future developments in the cheap labor economies of Asia, as well as by an influx of culturally heterogeneous and lower-wage-demanding immigrants.
The really interesting bits are on finance, since it is hard to overstate after reading this book just how important the financialization of the market has been over the last twenty years, not only economically but politically. (For yet another analysis from the left, see "Finance and American Empire" from the 2005 Socialist Register.) Enormous CEO salaries (which, as an interesting point of comparison, some Europeans when polled thought should be 3:1 to worker salaries, while in America the ratio in opinion is something like 13:1), severance pay, retirement funds, and generous stock option plans have incentivized all sorts of risky behavior that entails no individual punishment but massive social cost -- so-called "moral hazard."
With this rise in finance and corporate governance has come a corresponding assymetrical relationship in the political world, where massively unequal incomes create political inequality as the "voice of the majority" is edged out. (For an excellent overview of this state of affairs see "American Democracy in an Age of Rising Inequality," a report by the American Political Science Association in 2004.) Corporate ownership of media and greater attention paid to those with existing resources tends to reflect and promulgate the underlying assumptions of neoliberalism as well -- in the press and among pundits and economic analysts, economic failure can be remedied (so the story goes) only by further deregulation, and costs have to be cut at the labor level and jobs and wages "rationalized" to protect the bottom line.
Risk is, by definition, risky, and indeed finance and neoliberalism have created an environment of much greater and more frequent crises as compared to the industry and trade market of the mid century. To return to a by now familiar name, Martin Wolf has just said, in a column two days ago: "Regulators may have to step in [on corporate pay]. The idea of such official intervention is horrible, but the alternative of endlessly repeated crises is even worse." His fear is that "the political legitimacy of the market economy itself" could be destroyed by the current system, because "no industry [other than finance] has a comparable talent for privatising gains and socialising losses."
I am running out of memorized juicy bits here, so all I can do is to reiterate the readability, even-handedness, and all-around helpfulness of this book. Some of the key concepts of economics, particularly currency speculation and trading, remain fuzzy for me, but a few more times through this book or with help from other sources and they should be much clearer. Let me just say that I have no intention of sounding like an expert in these matters, and many of you probably know much more than me based on your own studies and even career experience; I only wish to encourage fellow travelers, who like me probably spend a lot more time reading Slavoj Zizek than Forbes -- and who knows at this point which is the more radical choice?
I certainly can't accuse John Liberty of failing to report to us on this looming crisis. However, I will try to relate my own recent experiences and research in a more introductory way. I've tried over the last month or so to familiarize myself with economic news, and in a few specific cases this has meant reading article and book-length pieces on the history and trajectory of the current economic system. A typical day means checking the WSJ, the FT, and several high quality economic blogs: Krugman, DeLong, and Thoma, for example. Also, despite its obvious radical leanings, and thus (dis)colorations, the World Socialist Website provides consistent, understandable analysis. Other good leftist perspectives include this piece by Joel Geier from the latest International Socialist Review and this interview in International Socialism.
By far the most helpful source has been the late Andrew Glyn's Capitalism Unleashed: Finance, Globalization and Welfare, his last published work before his untimely death. Lest you think this is merely a left-wing screed, it received high praise from the FT's own free market maven Martin Wolf, who called it "lucid and penetrating."
While I encourage you to read this short book yourselves, I can touch on some of its most salient points here, although I've already returned it to the library and so lack specific figures in many cases. Glyn, like many economists, locates a "Golden Age" in the post-WWII era of the '50s and '60s, when unprecedented growth was combined with high worker benefits and regulatory practices in the advanced capitalist economies (less so in America, a notorious outlier as far as "welfare states" go). When the "stagflation" of the 70s set in, it was Paul Volcker, Jimmy Carter's Federal Reserve Chairman, who found the solution in 1979 which would affect future practices: ratcheting up interest rates, which while causing a recession managed to end inflation.
Since the productive "Golden Age," capitalists and governments have sought ways to revive weak profit rates through what has come to be called "neoliberalism": the deregulation of markets, weakening of labor unions and dismantling of the welfare state in many cases. Increased growth and job creation were the promises made to the working and consuming class, but Glyn shows how in many cases this has not gone according to plan. Furthermore, European countries, particularly the Western and Northern states, continue to confound predictions and expectations by retaining higher welfare standards. As even Martin Wolf is shown to admit in one citation, the high taxation levels necessary to maintain welfare policies have not necessarily caused capital flight or lack of competitiveness. Also, the more "liberal" (i.e. free market) economies of the US, UK, Australia and New Zealand experience much higher levels of poverty, even when their economies are booming and European nations are in recession, and thus periods of high unemployment. The U.S. also actually lags behind such countries in terms of social mobility, which goes against much American rugged individualist ideology. The UK has experienced an even greater decline in class mobility. Of course, these trends, particularly the high levels of social security in Europe, could and probably will be affected by future developments in the cheap labor economies of Asia, as well as by an influx of culturally heterogeneous and lower-wage-demanding immigrants.
The really interesting bits are on finance, since it is hard to overstate after reading this book just how important the financialization of the market has been over the last twenty years, not only economically but politically. (For yet another analysis from the left, see "Finance and American Empire" from the 2005 Socialist Register.) Enormous CEO salaries (which, as an interesting point of comparison, some Europeans when polled thought should be 3:1 to worker salaries, while in America the ratio in opinion is something like 13:1), severance pay, retirement funds, and generous stock option plans have incentivized all sorts of risky behavior that entails no individual punishment but massive social cost -- so-called "moral hazard."
With this rise in finance and corporate governance has come a corresponding assymetrical relationship in the political world, where massively unequal incomes create political inequality as the "voice of the majority" is edged out. (For an excellent overview of this state of affairs see "American Democracy in an Age of Rising Inequality," a report by the American Political Science Association in 2004.) Corporate ownership of media and greater attention paid to those with existing resources tends to reflect and promulgate the underlying assumptions of neoliberalism as well -- in the press and among pundits and economic analysts, economic failure can be remedied (so the story goes) only by further deregulation, and costs have to be cut at the labor level and jobs and wages "rationalized" to protect the bottom line.
Risk is, by definition, risky, and indeed finance and neoliberalism have created an environment of much greater and more frequent crises as compared to the industry and trade market of the mid century. To return to a by now familiar name, Martin Wolf has just said, in a column two days ago: "Regulators may have to step in [on corporate pay]. The idea of such official intervention is horrible, but the alternative of endlessly repeated crises is even worse." His fear is that "the political legitimacy of the market economy itself" could be destroyed by the current system, because "no industry [other than finance] has a comparable talent for privatising gains and socialising losses."
I am running out of memorized juicy bits here, so all I can do is to reiterate the readability, even-handedness, and all-around helpfulness of this book. Some of the key concepts of economics, particularly currency speculation and trading, remain fuzzy for me, but a few more times through this book or with help from other sources and they should be much clearer. Let me just say that I have no intention of sounding like an expert in these matters, and many of you probably know much more than me based on your own studies and even career experience; I only wish to encourage fellow travelers, who like me probably spend a lot more time reading Slavoj Zizek than Forbes -- and who knows at this point which is the more radical choice?
posted by to scranton at 1:04 AM
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