Vicious Cycles
Dave Pollard has a great post on seven different cyclical processes, in which the state is heavily involved, which have these cumulative effects:
Here is one of the most important, the Real Estate Cycle (I've removed reference numbers to an accompanying chart in Pollard's post):
In an earlier post on the Two Income Trap, Pollard provided (among other things) this informative nugget of information:
Another is the Campaign Funding Cycle, in which
Still another is the Corporate Subsidy Cycle, along with the Oligopoly Creation Cycle:
The problems with these various cycles, Pollard observes, is that the taxpayer outflows are increasing, while the inflows of tax money are decreasing. And the burden of government and consumer debt is skyrocketing. The overall process is what I've described elsewhere as a crisis of inputs in the state capitalist system.
The answer: all these flows dry up. In other words, depression. It's interesting, by the way, how Pollard's cycles, the neo-Marxist analysis of Paul Mattick and James O'Connor, and Austrian theories of malinvestment and crackup booms, all dovetail so nicely together.
* bankrupt, corrupt government
* over-extended, cheated customers
* the disappearance of the middle class
* overheated real estate and stock market 'bubbles'
* unfair oligopoly practices inhibiting innovation and entrepreneurship
* massive transfer of wealth from the poor to the very rich
Here is one of the most important, the Real Estate Cycle (I've removed reference numbers to an accompanying chart in Pollard's post):
The economy depends fundamentally on the 'consumer' activities of taxpayers, and specifically on the willingness and ability of taxpayers to spend their money on real estate, taxes and user fees, and the purchase of (now mostly overpriced, imported) products. The spending on real estate drives up real estate prices, providing increased collateral to consumer lenders (4), allowing these lenders to loan ever-more money to taxpayers. This creates a self-perpetuating Real Estate Cycle that produces the Two Income Trap.
In an earlier post on the Two Income Trap, Pollard provided (among other things) this informative nugget of information:
Compared to 1978, the average American family spends (inflation-adjusted) 21% less on clothing today, 22% less on food (grocery & restaurant combined), and 44% less on furniture and major appliances than they did, although their (mostly-two-income) family take-home has risen 70% relative to the (mostly-one-income) take-home of the early 1970s. Where has the extra money gone? First and foremost to skyrocketing housing costs (up 100% on average, up to 600% in areas close to the best schools).
Another is the Campaign Funding Cycle, in which
[t]he taxes and user fees paid by ordinary taxpayers fund large tax cuts to rich taxpayers which are rewarded by campaign contributions to 'friendly' politicians...
Still another is the Corporate Subsidy Cycle, along with the Oligopoly Creation Cycle:
The government also rewards these campaign contributions by giving large subsidies to major corporations to enable them to globalize and crush smaller competitors, which drives up the share values of these large oligoplies, which in turn produces huge profits for the oligopolies and their rich taxpayers...
The problems with these various cycles, Pollard observes, is that the taxpayer outflows are increasing, while the inflows of tax money are decreasing. And the burden of government and consumer debt is skyrocketing. The overall process is what I've described elsewhere as a crisis of inputs in the state capitalist system.
What happens when the credit crunch comes -- taxpayers have borrowed their limit and just can't spend any more? What happens when the heavy trade deficit causes a spike in interest rates , making debts unrepayable (other than record rates of bankruptcy)? What happens when the real estate bubble bursts?
The answer: all these flows dry up. In other words, depression. It's interesting, by the way, how Pollard's cycles, the neo-Marxist analysis of Paul Mattick and James O'Connor, and Austrian theories of malinvestment and crackup booms, all dovetail so nicely together.
posted by Kevin Carson | 11:19 PM
15 Comments:
My money's on some form of corporate indenture for all those poor bastards who go broke and can't come up with the scratch to declare bankruptcy. Probably get presented as the sequel to the New Deal's PWA thing. Banks will end up owning us as well as our houses.
Yeah, after last year's bankruptcy "reform," when enough people default on their mortgages, the feds might just try to lay barbed wire around entire suburbs and turn them into debtors' prison camps inhabited by people in Chapter 13 debt slavery. They could call them Ditechvilles.
Kevin-
This is a perhaps naive but quite serious question which has been troubling me for some time: do you think the standard of living, or (as a separate question) the general wealth of American society is increasing or decreasing?
For years, as a vulgar libertarian, I held it an article of faith that 'progress' in 'our free society' dictated that our standard of living is improving. But this has never exactly matched by own observation and experience. When I read leftist and libertarian claims on the matter I feel I am being subjected to two different versions of reality I have little ability to evaluate. The only thing I know I don't trust are the official figures and econometrica.
What I particualrly wonder about is the relation between a supposedly more wealthy society and supposedly less free society, when freedom is supposedly a precondition and correlate of wealth. I wonder if we're really not less wealthy, more free, or whether freedom is any sense other than non(state)socialism has much to do with wealth at all.
Certainly it has been my observation that the virtues required for wealth production agree greatly with discipline, duty, self-immiseration, and conformity and have nothing to do with a liberal spirit or individualism. I don't like this- since it is killing to a Randian romantic realism and leaves open the possibility of comfortable, efficient dictatorship. But it is unfortunately my sense of the world.
Your thoughts?
Well, not Kevin, but gonna comment anyway. I'm a rebel, I am.
Far as I can tell, the general wealth of American society has been decreasing for several decades, at the very least. It tends to be deisguised by the fact that we have access to a fuckload of artificially cheap trinkets and artificially supported debt to buy them with. That stuff's not wealth though. It's just trinkets; in 5 years, most of it will be obsolete and broken. Actual wealth is stuff you can support yourself with, use to generate money, or protect yourself with. Land, hard metals, weapons, livestock, knowledge, skills; these things are wealth. $50 dvd players are toys.
As for the correlation of wealth and freedom, freedom makes it easier for more people to accumulate wealth. If you only want a few people to get wealthy, then freedom is counterproductive. What the ownership classes have discovered over the last century is that it's pretty easy to convince people that they're getting wealthier if you let them have lots of trinkets and make actual wealth unfashionable. Folks who think they're wealthy and free tend not to notice the chains they're in.
Look at China. The Chinese economy has made a few people really rich, and has given a lot more ready access to shiny consumer trinkets. Those folks now think they're rich, and most of them don't care that they're not free in any real sense of the word. The expectation of freedom in the sense that westerners understand it is an abberation, historically, at least for the last several thousand years. Neolithic heirarchies have been the pattern of civilisation since we thought them up, and they've been subject to the same structural stresses all that time. The expansion of primate emergency hierarchies to permanent social structures has had a substantially deforming effect on human social development.
Of course, these heirarchies always fall prey to the information transmission problem that RA Wilson points out, namely that the more structured and immense any given hierarchy gets, the less accurate info the folks at the top get, since the folks below them nearly always only tell their bosses what they want to hear, rather than what's actually happening. That kind of top-down/bottom-up rot severely limits the lifespan of any hierarchy. So, yeah, comfortable/efficient dictatorships are possible, but not for long. Cold comfort for folks living through the crash, though. Especially when they keep putting up more hierarchies to replace the broken ones.
A couple of things:
* It's true that housing prices have risen steadily over the past 30 years. Of course, it's also true that the average house is now considerably larger than it was in 1975. Instead of a 3-bedroom-one-bath-one-car-garage house, people are buying 5 bedroom houses, building workout rooms, home offices, decks, etc. If the average consumer demanded the same size house today that he did 35 years ago, there would definitely be a difference.
* What some of you denigrate as trinkets are engines of entertainment and labour-saving devices. A dishwasher may be a trinket to you, but for the parents who no longer have to slave over a sink for an hour a night, it's a great addition. Ditto things like washing machines, dryers, and so on. Those appliances make people's live considerably better and save time.
* No one forces people to buy cable TV, internet, VCRs, DVD players, video game consoles, and so on. People buy these things because they like them. They like to be entertained, and they're spending their food/clothing savings on it.
- Josh
The "so what?" is that leisure time and its enjoyment is, itself, a form of wealth. The impliments to enjoy that leisure are wealth indeed.
- Josh
Josh - You can't actually buy a smaller home in many areas even if you want one. When land is rezoned for housing, its value skyrockets, and to maximize their profits, the developers have to build as big as zoning allows. Around here (suburbs near Vancouver, BC) this means three kinds of housing are being built: 1) big houses on small lots, 2) rowhouse-style townhouses or 3) condos. And because suburban councils like single-family houses and dislike towers, we're getting a lot of 1 and 2 and not much of 3. There are no small houses being built at all. Between artificially inflated values and zoning, there's not much of a "market" at all.
Even if zoning was radically relaxed tomorrow across my region, the price spiral has been building for a decade, and huge amounts of formerly industrial or agricultural land would be colonized by housing developers. It would either cause a massive housing price crash - not good for the current economy - or it just gut the future of local industry for a few years until prices returned to some kind of normal equilibrium.
See, I differentiate between luxury and wealth. True wealth allows luxury without damage to survival, but false wealth encourages luxury at the expense of survival. As for the leisure time thing, yeah that's a reflection of wealth. Which is one of the ways I can tell I'm not wealthy, despite having a cheap dvd player and a wide variety of dvds to play in it. Unfortunately, I've also got to work 7 days a week to pay for my family's living expenses, which means I rarely have the time to enjoy the few luxuries I can afford.
I agree with Joe there's a difference between luxury and wealth. I won't disparage luxury, which I might even regard as the purpose of wealth. But in my experience our economy does make luxury easier, and sustainable wealth hard.
My ex-girlfriend is in a situation similiar to Joe's. She has a very nice laptop, a nice DVD player, and other treasured toys, and that's wonderful. But she has to work most of the time to pay rent on an apartment, doing a waitressing job she doesn't like for a sexist boss who treats her disrespectfully and blocks her advancement because, despite being great at her job, she's too large for his tastes and that's all that matters to him. She can't easily quit because her only options are to take a job she would like but would stretch her ability to pay her bills, or to try the applying and applying to find a job which matches her education... but spending time doing so would mean she'd have *no* time to herself.
That's not freedom. That's not how life ought to be lived- even if we are very, very lucky in historical terms to have the toys and DVD players- not to mention plentiful and healthy food and birth control and heated homes. But considering our resources- and simple justice of what other options should be available to us- it's a crime. My friend is having her youth stolen from her in ways which would never happen in a free society, where the real value of her labour wouldn't be funneled upward to bosses who do nothing.
What I still don't know is whether our situation is better or worse than in the past. I think most libertarians are a bunch of delusional, class-blinded pollyannas when it comes to the present. But the past is a very, very ugly thing, and it is possible we are living in both unconscionable oppresion and the best circumstances in recorded history. On this I'm not sure.
I agree with Joe there's a difference between luxury and wealth. I won't disparage luxury, which I might even regard as the purpose of wealth. But in my experience our economy does make luxury easier, and sustainable wealth hard.
My ex-girlfriend is in a situation similiar to Joe's. She has a very nice laptop, a nice DVD player, and other treasured toys, and that's wonderful. But she has to work most of the time to pay rent on an apartment, doing a waitressing job she doesn't like for a sexist boss who treats her disrespectfully and blocks her advancement because, despite being great at her job, she's too large for his tastes and that's all that matters to him. She can't easily quit because her only options are to take a job she would like but would stretch her ability to pay her bills, or to try the applying and applying to find a job which matches her education... but spending time doing so would mean she'd have *no* time to herself.
That's not freedom. That's not how life ought to be lived- even if we are very, very lucky in historical terms to have the toys and DVD players- not to mention plentiful and healthy food and birth control and heated homes. But considering our resources- and simple justice of what other options should be available to us- it's a crime. My friend is having her youth stolen from her in ways which would never happen in a free society, where the real value of her labour wouldn't be funneled upward to bosses who do nothing.
What I still don't know is whether our situation is better or worse than in the past. I think most libertarians are a bunch of delusional, class-blinded pollyannas when it comes to the present. But the past is a very, very ugly thing, and it is possible we are living in both unconscionable oppresion and the best circumstances in recorded history. On this I'm not sure.
I think that Lady Aster's question is nearly impossible to answer in full, but if we get back to two basics, I think we can at least give a rough approximation.
First, all value is subjective. So, as she notes, econometrica are useless in the extreme. In fact, it is somewhat paradoxical to try to compare wealth given that value is subjective.
That said, it is clear that the U.S. is wealthier than, say, Kenya. So there is some indicia of wealth that is relatively objective. I tend to think of it as some sort of measure regarding how much labor is necessary to provide bare subsistence living, and that is the sort of thing that has trended downward over time in relatively free markets.
However, the second major point to consider is that REAL wealth comes from savings, not debt. In a former career, I was around a lot of people who outwardly appeared quite wealthy - nice cars, big houses, expensive vacations, the whole shebang. They came to me when the creditors started unraveling their illusion. Because that is what a lifestyle built on debt is - an illusion.
What little we do know is that currently our collective savings rate is at an all-time low, even given the biased gov't numbers. This is confirmed by my anectdotal evidence, where I know many people deeply in debt. It seems to me we are currently living in an illusion, and that subconsciously, many people realize this, and that is why there is so much anxiety/envy.
I haven't studied enough to have a confident theory on why we became a nation of debtors, but the connection to Keynesianism and "demand stimulation" seems to be too strong to deny at least a place as one of many causes.
lady aster,
I've been considering the question you raised, and have yet to work out an answer to my satisfaction.
I'm not an Austrian, let alone a doctrinaire one, but I tend to think they're right in saying that "intersubjective utility comparisons" are impossible. So the question may be impossible to answer. There is no objective measure of "progress" or "increased standard of living" that holds true from one person to another.
On the other hand, I also agree with the Austrians that non-coercive interaction maximizes utility for everyone, and coercion destroys utility. So to the extent that the present system is (directly or indirectly) coercive, the overall utility is less.
Certainly from my own subjective standpoint, many aspects of life are worse. There's been a rapid progression of Ivan Illich's "radical monopolies," for one thing. For example, the increasing "professionalization" of services, and technologies oriented toward replacement rather than user-friendliness and ease of repair have. Such "radical monopoly" crowds out older ways of doing things, by which one's own labor can be directly transformed into use-value. In so doing, they increase the need for money income, and make wealth more and more a prerequisite for freedom. As Illich said, the crowding out of low-tech, decentralist alternatives by state-subsidized high tech/"professional" consumption goods makes comfortable poverty less and less feasible.
Josh,
I think we still disagree on the extent to which consumer culture is a self-arising and independent phenomenon, as opposed to something manufactured by the state in collusion with corporate interests. The mass advertising culture of the post-WWI era was created by pretty much the same people who invented the science of "manufacturing consent" during WWI. And from their perspective, the goal was the same: to reshape the culture from above.
Not only the state-cartelized corporate economy, but the state itself directly, engaged in a massive propaganda effort to promote the ideas that "ending is better than mending" (20,000 repetitions via hypnopaedia from ages 4-8), and that homemade=backward=unamerican.
There's also the point I raise above that, in a cartelized oligopoly industry, a handful of firms may deliberately promote high-dependency consumption goods at the expense of convivial consumption goods because they're more profitable, and that the convivial goods may be crowded out so that people are forced to "choose" from a diminished range of alternatives. What matthew says about the industry trend in housing construction sort of ties in with this.
quasibill,
I wrote the above before I scrolled down to your comment. You beat me to the point about subjective utility. Damn, I should have just shut up and let you answer.
Like you, apparently, I wouldn't in principle reject the econometric "big numbers" like GDP or median income--at least, if externalities were closed and there were a way of excluding the repair costs of "broken windows."
quasibill,
"It seems to me we are currently living in an illusion, and that subconsciously, many people realize this, and that is why there is so much anxiety/envy.
I haven't studied enough to have a confident theory on why we became a nation of debtors, but the connection to Keynesianism and "demand stimulation" seems to be too strong to deny at least a place as one of many causes."
After I read that first paragraph, the famous words of the state-patsy came to mind, "In the long run we're all dead", which is the shares similar sentiment with those who live a life of debt slavery, who at the same time shorten their bittersweet existence with the anxiety and tension of maintaining this false wealth.
Kev,
It's an area where we simply have to agree to disagree. I simply don't think people are as captive to advertising as you do, nor do I think that the consumer culture (whatever that actually means) was foisted on a people longing to wash their clothes in sinks and read the same 10 books over and over, if they had any free time to enjoy. If your argument were a path dependence argument, I would tend to agree.
- Josh
Fair enough, Josh, since this all involves a lot of counter-factual speculation.
I'd never heard of "path dependence" until you mentioned it, BTW. I read a Wikipedia article on it and was fascinated. If I understand it correctly, my position above includes a path dependence argument, although the part about advertising and propaganda certainly goes further than that.
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