Thursday, April 19, 2012

"What Are Capitalists For?"

If private investment out of corporate profits does not encourage sustainable economic growth but rather the inflation of speculative bubbles in financial markets, as James Livingston argues in Against Thrift, then why is this the case? The proposition seems to be counterintuitive at best - and absurd at worst - on its face. In a capitalist economy like ours, one would think that the facilitation of capital formation would be the driving force of the economy. That's why they call it capitalism, right?

But according to Livingston (and the economists and thinkers that he draws from in making his case), that's not how the economy works today. In fact, that's not how it has worked in quite a while. If you take a look at the charts and graphs in the book's appendix, you'll see that long-term economic growth in the 20th century took place in spite of a secular decline in private investment. In his account, there are two main factors behind this shift from "extensive" economic development (investment in capital goods, like the machines in factories) to "intensive" economic development (activity driven by demand for consumer goods, like laptop computers): technological innovation and the increased importance of "human capital" in advanced economies.

Technological innovation has not only increased what Keynes called "technological unemployment." It has also allowed companies to continually replace old machinery with new and more productive (and in many cases, even cheaper) machinery. So as Livingston observes, capital stock and productive capacity can increase even in the face of declines in private investment. As economies develop into mature, advanced economies with less need for direct human labor in goods production, what Marx called the "general intellect" - the general level of knowledge, skills, ideas, and techniques in a given society - becomes an increasingly important factor in economic activity. Academic economists caught up to this insight in the 1950s and 1960s, when numerous studies found that investments in public education as well as technological-scientific innovation had come displaced the pursuit of profit in driving economic growth and development. (212-213)

Livingston is somewhat vague in describing the significance of this shift, so I won't rely on his account to explain it here. Instead, I'll turn to Gar Alperovitz and Lew Daly, whose recent (and fascinating book) Unjust Deserts: How the Rich Are Taking Our Common Inheritance covers much of the same ground. An interview with Dissent that offers a fairly good synopsis of their thesis, so I'll quote from it at length:

JL: And how has growth changed?

GA: Basically the story is that we have moved from a labor-intensive, small-scale farming economy to a knowledge-based information economy. In the process, the sources of growth have changed, but it’s important to understand that individuals have not really changed. We work no harder today than our ancestors did in 1800 or in the ancient past, and just the same, we are no more intelligent, in terms of basic brain capacity and reasoning ability. The cave paintings of earliest human culture are works of roughly the same basic intelligence as the theory of relativity. Let’s hold that thought: Essentially, we work no harder and are no more intelligent than our ancestors from the near or even the ancient past. And yet our economy is more than 1,000 times larger than it was in 1800, and the best measure of prosperity, per capita Gross Domestic Product (GDP)—the amount of output the economy generates for every person—is twenty times higher today than it was in the early nineteenth century (it was $42,000 in 2006, the equivalent of almost $170,000 for a family of four). The key to this growth, experts agree, is rising productivity, usually measured in terms of the amount of output per hour of work, which rose more than fifteen-fold since 1870.

JL: Wasn’t economic growth always based on some combination of knowledge, capital, and labor?

GA: Yes, but the recipe—the balance of ingredients—is very different from what it used to be. After the Second World War, economists began to formally study economic growth, and a method known as growth accounting was developed to measure the sources of growth—the idea being that if we understand the “how” of economic growth, where it’s coming from, then we can develop better policies to improve the economy and raise living standards. The pioneer in this work was MIT economist Robert Solow, who, in a brief but now-famous paper published in 1957, made a startling discovery (he later won a Nobel Prize for this work). In contrast with the then-dominant assumption that increases in the supply of capital (factories, machines, etc.) were the main engine of economic growth, Solow found that less than 13 percent of growth in the first half of the twentieth century could be attributed to capital accumulation or increases in labor supply (in fact, labor supply per person had been diminishing as the forty-hour week became the norm). Most of the growth, that is, was not coming from the conventional inputs of labor and capital, what workers and employers supply. The nearly 88 percent of growth that remained unaccounted for—which became known as the Solow Residual—could only be attributed, Solow concluded, to something broader and deeper than the everyday economic activity embodied in labor effort and capital accumulation. Solow defined this as “technical progress in the broadest sense,” or, in other words, the cumulative knowledge and technological capacity of our society. This did not make any sense in terms of our traditional individualistic way of thinking about economic activity or economic rewards.

JL: But in a technological society, isn’t individual brainpower more important than ever?

GA: Maybe not. An engineer working today might have the same human capital as an engineer working 100 years ago. Yet, as the Stanford economist Paul Romer points out, the contemporary engineer is typically far more productive. The reason is self-evident: “He or she can take advantage of all the additional knowledge accumulated as design problems were solved during the last 100 years.” The value is in the knowledge, not the individual.

JL: What does it mean to say that the value is in the knowledge?

LD: Romer’s example suggests something deeper about the cumulative impact of expanding knowledge: As knowledge grows and improves against a relatively fixed baseline of human effort and intelligence, the importance of individual contributions shrinks proportionally. In other words, the locus of value or value-generation is shifting from the individual to society. And this, in turn, means that our conventional individualistic basis for judging economic differences no longer holds. How do we measure “who deserves what” in an era of knowledge-based growth, where the cumulative knowledge of society is increasingly more important than individual effort or intelligence? Clearly, the way we talk and think about inequality doesn’t account for the enormous “free lunch” of inherited knowledge at the heart of both our annual GDP and our total wealth.

So that brings us back to the question that lies at the heart of Against Thrift: "what exactly is it that capital does, or rather, what are capitalists for?" (213)

Wednesday, April 18, 2012

The Jet Engine and the Oxcart

Tax Day is always an occasion for partisan political theater. This year, however, is a bit different. We're in the midst of a presidential election campaign, and the emergence of the Occupy Wall Street movement has propelled the issue of economic inequality into the center of the national political discourse.

On Monday, Republicans in the Senate blocked a motion that would have opened debate on the so-called "Buffett Rule," a revision to the tax code promoted by President Obama and Congressional Democrats that would set a minimum tax rate of 30% for all Americans earning $1 million or more. Even if the proposal were brought to the floor there's no chance in hell it would pass, as Republicans in both houses of Congress have denounced it as yet another example of Obama's plot to turn the country into a limp-wristed Eurosocialist hellscape. But in something of a role reversal, it has allowed Democrats to turn taxes into a cudgel against the Republicans. As the New York Times reports, according to polls over 70% of Americans support the rule, including over 50% of Republicans. For their part, Republican leaders in Congress are calling for a small business tax cut that would cost the federal government almost exactly the same amount of revenue it would take in if the rule were adopted.

Much of the debate over taxation revolves around the question of fairness: whether the very rich - who have enjoyed the lion's share of total income gains in recent decades - are shouldering their fair share of the tax burden while wages and incomes for working people continue to stagnate. But as the partisan wrangling over the Buffett Rule shows, there's a larger issue lurking in the background - an argument over what factors in the contemporary political economy drive economic growth.

In opposing the Buffett Rule, Republicans in Congress have rushed to the defense of the so-called "job creators" - the wealthy and the businesses they own and manage. Instead of raising taxes and redistributing income, they say, we should ease the tax burden on the rich in order to spur increased corporate investment and profitability - which will ostensibly promote job creation and economic growth. Republicans tend to be the most forceful proponents of this argument, but they're hardly alone. President Obama's stimulus package, for example, was heavily weighted toward tax cuts for individuals and businesses. As James Livingston points out in Against Thrift, people on the Left, Right, and Center tend to place the "jet engine" of economic growth and the "oxcart" of redistribution and social justice at odds with each other.

And he thinks they're all wrong.

The appendix of Against Thrift ("Capital in the American Economy: Kuznets Revisited") contains pages of technical definitions, charts, and graphs that make the empirical case for Livingston's argument that giving tax breaks to the rich and to businesses to spur increased investment and hiring is pointless at best. It's relatively tough going, so I won't try to recapitulate it here (but if you're interested the full text of the appendix, with graphs, can be found here). For our purposes right now, suffice to say that according to Livingston,

"The historical evidence shows there is no positive correlation whatsoever between lower taxes on personal income or corporate profits, increased private investment, and economic growth. The strong correlation we can demonstrate, in view of this evidence, is between lower taxes on corporate or personal income, declining net private investment, and speculative bubbles that led to economic crises, as, for example, in the periods from 1919 to 1939 and 1981 to 2009.

Put it another way. The financial collapse and the credit freeze that characterize both the 1930s and our own time are symptoms, not causes, of a broader economic crisis determined by our mistaken belief that to foster growth, we must provide capitalists and corporations with incentives to invest. In fact, these incentives are merely invitations to inflate speculative bubbles." (61-62)

The alternative diagnosis? "A greater dose of consumer culture and a higher volume of consumer spending induced by a redistribution of income will, however, address the causes of the crisis, and lay the groundwork for balanced growth in the future." (196)

I don't have the training to adequately assess many of the specific empirical claims made in the appendix of Against Thrift. But recent economic reports seem to offer a degree of support for Livingston's thesis. Last week, the Wall Street Journal reported that corporate America is stronger and more profitable now than it was before the recession, while the top 1% enjoyed an astounding 93% of the income gains in 2010, the first full year of "recovery." Needless to say, despite recent optimism for a more broadly-based recovery none of this has translated into meaningful income and employment gains for the majority of the population.

More on the sources of economic growth and development in the next post!

Saturday, April 14, 2012

The Fourth M: Morality

And finally, we come to the last of James Livingston's "Four Ms," which serves as something as an organizing principle for the other three: Morality. According to my reading of the text, Morality probably shares the most overlap with the first M, Mistakes. My relatives' opposition to public policies such as the Community Reinvestment Act (CRA) isn't just grounded in what they perceive as the negative effects of the policy. It derives primarily from their sense that the CRA was an immoral giveaway to the undeserving, indolent poor, and in reaching this moral conclusion they also assigned responsibility for the economic crisis to easily identifiable actors. It allowed them to make some sense of the chaos unfolding around them, even if their conclusions were misguided.

Here's Livingston's take on how the meta-narrative of Morality ties together all of the other potential explanations for the crisis:

"The master text of Morality thus organized many strands of thought, like a magnet in the vicinity of those fabled iron filings: it was consistent with the notion that Mistakes were made, that Monopoly was the problem, and that Money was the root of all evil. It allocated blame in a comprehensive way, by suggesting that if only everybody hadn't become so avaricious, so desirous, so loaded up with the material freight of the world, why, that world would be a better place. This master text identifies certain villains, then, but in the end it also announces that we were all at fault: we know who the bad guys are, but we know, too, that our excess enabled them. As the cartoon cliche goes, we have met the enemy, and it is us." (33)

This impulse to identify culprits and assign blame constitutes an attempt to understand the operations of an abstract, depersonalized, and highly complex economic system. As Livingston observes, "the great irony here is that we want to somehow personify the idiocies of the market economy so as to restore its anonymous, providential force, as if we were trying to deflect the arbitrary effects of fate, hoping to humanize the gods by giving them names." (30)

As I argued in my post on Mistakes, this impulse to locate the human hand behind social and economic disruptions - this "Whig science of politics," as Gordon Wood put it - runs like a thread throughout the history of American political culture, and compels us to look high and low for grand plans and conspiracies against the people even where none exist. But, as Livingston asks, "What if nobody's to blame?" What if the crisis is symptomatic of deeper forces at work that have a momentum and logic of their own?

There is a discourse at work here that unites political actors who otherwise have very little in common with each other: the language and political morality of productivism, or what Livingston will call "the pathos of productivity" later in the book. Productivism has no specific political address. It can and does exist on the Left as well as the Right. Productivist ideology typically divides society into two separate and opposed camps: the producers and the parasites. In the productivist moral imaginary, the producers are virtuous because they live by the sweat of their brow. They transform their surroundings through their labor, thus bringing something new and valuable into the world. This is a cross-class category that includes the bulk of the working class (particularly those who work with their hands or in manufacturing industries), as well as small business people and entrepreneurs. Opposed to them are the parasites, a group that includes the idle rich, bankers, bureaucrats, lawyers, and middlemen of all sorts as well as the ostensibly indolent and "undeserving" poor. In the productivist moral imaginary, they survive by skimming off the value created by the honest labor of the producers, threatening the proper functioning of the self-regulating market as well as the foundations of moral order. Idle hands make collateralized debt obligations.

It's this kind of productivist ideology that animates the widespread complaint that this country "doesn't make things anymore," that makes a sharp distinction between the "real" economy of goods production and the ostensibly less real service economy. According to this discourse, by trading factories for finance and other similarly "unproductive" pursuits we have undermined our economic base and facilitated the atrophy of public morals. Instead of creating lasting value through long-term investment, we have encouraged the pursuit of short-term gain. Instead of inculcating the virtues of hard work and thrift, we've created a culture of self-indulgence and heedless consumerism. If we're going to turn things around, we've got to start making things again instead of manipulating numbers on a computer screen. We've got to save more and consume less.

This discourse has widespread appeal, but like many things with widespread appeal its claim to legitimacy is fairly dubious. For one thing, the claim that "we don't make things anymore" is demonstrably false. The U.S. is still a manufacturing powerhouse, but innovations in labor-saving technology have made it possible to produce more (and different) stuff with far fewer workers than before. We just don't need armies of unskilled and semi-skilled labor to make steel, planes, or wind turbines anymore. And if James Livingston is to be believed, the root of our economic troubles is not a lack of economic morality but the problem of surplus capital. At long last, here's his diagnosis:

"Since 1990, consumer expenditures have indeed increased at the expense of saving and investment, but not because the latter were crowded out by the former, and not because the moral fabric of American life has unraveled. Investment has atrophied even as corporate profits have risen because these profits are, for the most part, redundant revenues with no place to go except into speculative markets where so-called securities like CDOs congregate; household savings have declined and consumer borrowing has increased because wages and salaries have stagnated even as executive compensation has multiplied many times over.

Our problem is not morality; it's surplus capital - a 'global savings glut' that can't be fixed without redistribution of income from capital to labor, from profits to wages, from savings to consumption, an economic repair that's urgently needed both locally and globally
." (34-35)

Livingston builds his case on a rather controversial claim about the sources of economic growth, and he's got a whole appendix of graphs and statistics to prove it. But that's enough for now. We'll begin to take up that argument in the next post.

Friday, April 13, 2012

The Third M: Money

I'm not above indulging in a bit of schadenfreude, so I have to admit that for me one of the silver linings of the economic crisis has been Alan Greenspan's remarkable fall from grace. As the boom of the late 1990s reached ever giddier heights (remember all that talk of Dow 36,000?), the former Federal Reserve chairman was feted by pundits and politicians across the political spectrum as the maestro of the market, who guided the economy with the confident self-assurance of a symphony conductor.

Fast-forward to October 2008, with the economy in shambles and the go-go days of Clintontime a distant memory. As stock market values plunged ever lower, foreclosures exploded, and millions of Americans found themselves thrown suddenly out of work, Greenspan appeared before the House Committee on Oversight and Government Reform to answer for the chaos. The committee chair, Rep. Henry Waxman (D-CA), was blunt in his questioning: “You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others...Do you feel that your ideology pushed you to make decisions that you wish you had not made?” Greenspan's reply: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

According to a wide range of economists and politicians, Greenspan's cardinal sin was his failure to raise interest rates and hence the cost of borrowing, which encouraged reckless lending and speculation in the housing market. When that bubble burst, it brought the rest of the US and global economy down with it. On this widely held view, it was the Federal Reserve's misguided stewardship of the nation's money supply that lies at the root of the crisis - therefore, a correction in monetary policy (such as the Fed's repeated experiments in "quantitative easing") can go a long way of bringing us out of it.

You guessed it: James Livingston has no truck with the monetary explanation of crisis. He concedes that the bursting of the housing bubble was the proximate cause of the Great Recession, just as widespread bank failures and the subsequent contraction of credit was the proximate cause of the Great Depression of the 1930s. Then as now, however, looking toward the money supply for explanation of the deep roots of crisis confuses symptoms with causes, and leads to public policy measures that do little to bring the economy out of its malaise.

Livingston makes the case with an historical analogy:

"If the proximate cause of the Great Depression was a 'great contraction of credit,' a great expansion of credit should explain the recovery of 1933 to 1937, just as it should explain what is called the recovery of 2009-2010. But in the 1930s, the banks folded and never returned to the table. Instead they bought government bonds and parked their assets with the Fed, increasing their loans and discounts a mere 8 percent between 1933 and 1937, from a baseline close to zero - while in the current crisis, the banks are again sitting it out because the value of their 'assets' is still in doubt. In the earlier recovery, price inflation was minimal because even as industrial output doubled, so currency devaluation accounts for almost nothing there. In the current so-called recovery, both inflation and investment are absent and a 9 percent to 10 percent unemployment rate persists, but the money supply has more than doubled. So it's hard to see why economists believe the money supply or a 'financial fix' explains much of anything, either as a cause or a cure for economic crisis." (28)

If Livingston is right, and monetarist explanations of crisis are fundamentally misguided, then why do you think they retain their influence in mainstream economic and political discourse? What are some possible alternative explanations?

Wednesday, April 11, 2012

The Second M: Monopoly

The late financial crisis made most Americans familiar with a phrase that quickly became a fixture in the national political lexicon: "too big to fail" (or TBTF for short). As the global economy was falling apart in the fall of 2008, we learned from policymakers and pundits that certain banks and financial institutions - Bank of America, Wells Fargo, Goldman Sachs, JPMorgan Chase, and Citigroup, among others - were so large and so important to the functioning of the economy as a whole that the government had little choice but to bail them when they faced impending doom. Opposition to TBTF has no specific address on the ideological spectrum. It has come under fire from Tea Partiers, Occupy Wall Street protesters, and politicians from each of the two major parties. The movement to break up the big, systemically important banks seems to be picking up steam, gaining support from rather unexpected quarters. As ProPublica's Jesse Eisinger has reported, the Federal Reserve Bank of Dallas just released a report calling for the dismantling of the biggest banks' "oligopoly power," which it says has left "a residue of distrust for the government, the banking system, the Fed and capitalism itself." Considering the source, that's pretty strong stuff.

But James Livingston is nothing if not a contrarian, and he's here to tell you that TBTF and the monopoly power of big banks and big corporations did not cause the Great Recession - and that their very size and scale is a good thing. As he notes, opposition to concentrated economic power has a long pedigree in American political culture. It found its first spokesperson in Thomas Jefferson, and it galvanized the Populist and anti-trust movements of the late 19th and early 20th centuries, when corporate capitalism became the organizing principle of the American political economy. On this view, big is bad and small is beautiful. Big distorts the self-regulating market and undermines democracy, while small creates jobs and provides the material foundation for democratic pluralism.

There's no doubt that economic power translates more or less directly into political power. We've known that since Aristotle, and as a man of the Left Livingston does not seek to deny this elementary fact. What he does object to is the idea that small economic units are inherently better or more efficient than large ones, and that a smallholder economy is synonymous with democracy while large, corporate formations are not.

We hear a lot about "job creators" today, and it's an article of faith among most people, regardless of their political persuasion, that small businesses are the engine of job growth. Even James Livingston concedes this ostensible fact when he answers "yes, they do" (21) to the question "don't small businesses create most of the new jobs?" He comes back with the counterargument that most of those jobs generated by small businesses disappear within two years. That's true; small businesses fail at a very high rate. But the Bureau of Labor Statistics, the agency which keeps track of this kind of economic data, recently refined the way it measures the relationship between job creation and firm size. The new data, which covers the period from 1990 through March 2011, shows that large businesses created new jobs at a much higher rate than small ones. As Floyd Norris of the New York Times reported,

Over that entire period, employment at large companies — defined as those having at least 500 employees — rose 29 percent, while employment at smaller companies rose by less than half as much.

At small companies, defined as those with fewer than 49 employees, the total number of jobs rose by just 10.5 percent over the period. Had the entire private sector grown at that pace, rather than rising by more than 19 percent, as it actually did, there would have been nearly eight million fewer people with jobs last March, and the unemployment rate would have been around 14 percent.

And as Livingston points out, jobs at small businesses often aren't very good: "the little guys in every line of business are the employers who are most likely to be union-busting fanatics because, unlike large corporations, they can't pass their labor costs on to the final consumer in the prices of their products; so the jobs they create tend toward the minimum wage variety." (21)

So what about the political virtues of an economy organized around small businesses? As I noted above, the vision of a smallholding economy based upon the wide diffusion of property ownership runs deep in the American grain, and has even survived a century of corporate capitalism. There's no doubt that corporate power poses a threat to democratic government - just look at what the Supreme Court's decision in the Citizens' United case has done to increase the influence of "Super PACs" in the current presidential election.

But again, Livingston makes the perhaps counterintuitive claim that corporate capitalism was the economic precondition for the explosion of democratic participation and desires in the 20th century, both in the US and around the world:

"By any measure, the twentieth century, the age of the giant corporation, was a much more democratic moment [than the 19th century], when women and minorities were finally enfranchised in the broadest possible sense of that term - gaining the right to vote, to be sure, but also entering the mainstream of the culture. The twentieth century was also the the moment of a dispersal of power from the state to society, when the regulation of markets began to be shared between public agencies like the Federal Trade Commission and private organizations like large corporations and trade unions. This, too, was a democratic promise that couldn't have been made in the nineteenth century; for it taught ordinary people to be aware of their rights, their powers, and their obligations in a new kind of public sphere, where non-governmental organizations (NGOs), all kinds of associations, became the rule."

Besides, Livingston argues, breaking up the TBTF banks and financial institutions will do nothing to address what he sees to be the real cause behind the financialization of the US economy over the last 30 years. But once again, we'll bracket that question for now as we work through the next two Ms.

Questions for discussion:

What do you make of Livingston's defense, from the Left, of corporate capitalism and big business?

Should we break up the TBTF banks? If so, why? If not, what's the alternative?

Tuesday, April 10, 2012

The First M: Mistakes

I can remember a number of recent family dinner table conversations in which one relative or another denounced leaders in both government and business as variously inept, incompetent, or corrupt. A favorite target of my clan of first and second generation immigrant strivers has been the Community Reinvestment Act (CRA), the 1977 law that sought to end practices like redlining and compel banks to expand lending and investment in poor and working class neighborhoods, particularly those with large populations of people of color.

For them, the CRA was yet another mistake made by the "liberal elite," a giveaway to the undeserving (read: African-American or Latino) poor that loaded up the banks' balance sheets with unpayable debts and caused the financial crisis of 2008. Never mind the fact that this narrative is demonstrably false. The need to identify and condemn those perceieved to be responsible for wrecking the supposedly self-regulating market is deeply ingrained in American political culture, and tends to make itself felt in times of economic and social crisis.

It's an integral aspect of what the eminent historian Gordon S. Wood called the "Whig science of politics" in his classic book The Creation of the American Republic. The American revolutionaries were Whigs, and their impulse to establish a scientific foundation for politics compelled them to look for a “grand plan” behind the seemingly incomprehensible events of their time. Paradoxically, it was this very scientific, rationalistic impulse to establish causality in political affairs that inspired Whigs to see a conspiracy against American liberty behind every action of the British crown, even where none existed. This insight also lies at the heart of Richard Hofstadter's seminal work on The Paranoid Style in American Politics.

But perhaps the logic of large, complex, social systems like capitalism makes it impossible to locate the causes of crisis in the mistakes made by specific individuals or institutions. Perhaps human error isn't the only threat to the smooth operation of self-regulating markets. Perhaps recurrent crises are a normal, natural, unavoidable aspect of the system itself. Perhaps they are, so to speak, nobody's fault.

That's part of the argument that James Livingston makes in Chapter Two of Against Thrift, and that's the essence of the case that he makes against the first of the "Four Ms" typically employed to explain the origins of the current economic crisis.

According to Livingston, the crisis can't be blamed on, say, Alan Greenspan keeping interest rates too low during his tenure as Federal Reserve chief, or the short-term greed of bankers and hedge-fund managers, or the academic economists who dreamt up theories soothing theories like the efficient market hypothesis. Livingston doesn't deny that there was lots of incompetence, greed, and chicanery going on in the chambers of public and private power in the years leading up to the crash. But he doesn't think that these mistakes were significant enough to bring the global economy to the brink of collapse. He also thinks that it's kind of beside the point to berate decision-makers for doing little more than playing the roles they're supposed to according to the logic of whatever institution they are part of - whether that's University of Chicago academics coming up with pro-market theories or business executives pursuing short-term profits at the expense of longer-term economic stability.

Bear with me - we will eventually get to what Livingston identifies as the ultimate source of the Great Recession in particular and of economic crisis generally. But first, we need to follow him as he rejects possible alternatives to his point of view, one by one. Tomorrow, we'll tackle Livington's second M: Monopoly.

Until then, I'll leave you with the music video for the song "My Mistakes" by Eleanor Friedberger, up at the top of the post. It has nothing really to do with our discussion here. All this talk about mistakes just reminded me of that great song!

Friday, April 6, 2012

"The Revenge of the Populists"

James Livingston has a problem with Populism. Specifically, he has a problem with how (according to his perspective) Populism continues to serve as the "master text" of most American explanations of economic crises, including the Great Recession. As Livingston argues, this analysis has cannot be identified exclusively with either the Left or the Right. It's endemic to American political culture as such, the "common sense" of pundits and politicians across the ideological spectrum. The Populists may have been permanently defeated at the polls in 1896, but for better or worse their approach to analyzing the economy runs deep in the American grain.

The last few years of economic crisis have been terrible, but it's been nothing compared to the recurrent crashes, panics, and depressions that gripped the country in the last decades of the 19th century. It was during this time that the discipline of modern economics was founded, whose leading figures offered new theories of the business cycle built upon three central premises.

First, they "assumed that crisis was inevitable, even normal regardless of how scrupulously and rationally business decisions got made." (11) In contrast, Populists tended to look for incompetence or corruption on the part of politicians or bankers to explain the outbreak of crises.

Second, they argued that "rational decisions at the microlevel of the firm could contribute to disaster at the macrolevel of the economy as a whole," (11) which would result in overproduction - too much stuff with not enough people to buy it all. The Populists, by contrast, argued that the improper regulation of the money supply and the rise of corporate monopolies were bigger threats to economic order.

And third, they argued that a central bank was needed to engage in "ready lending" when crisis struck - "restoring liquidity to the banking system as a whole, so that a credit freeze would not bring all economic activity to an abrupt and catastrophic end." (13) If that third point sounds familiar, it should - that's what the bank bailouts were all about. And like the Populists of old, Americans across the political spectrum have ferociously denounced the bailouts as a dangerous encouragement of moral hazard in the financial system.

Livingston argues that more or less the same conflict on today, and that the most common explanations of the Great Recession "map onto the debates of a hundred years ago," (14) and to Livingston's chagrin the neo-Populists seem to be winning the battle of ideas. He reduces their analysis of the current crisis to what he calls the Four Ms: Mistakes, Monopoly, Money, and Morality. To continue the lame alliterative theme, he concludes that these each of these explanations are merde.

We'll take up each of the Four Ms next week. But for now, enjoy your weekend, and enjoy the holiday if you are so inclined!

Thursday, April 5, 2012

C-M-C vs. M-C-M'

Consumer culture is all about the buying and selling of commodities - those goods and services produced by human labor and sold on the market that satisfy some sort of want or need. A commodity can be something straightforwardly useful, like a hammer. Or it can be something more indulgent, like that inflatable reindeer costume I bought for a holiday party a few months ago. Trust me, it was worth it.

Karl Marx is probably history's foremost analyst of the commodity as an economic, cultural, and even metaphysical phenomenon. He's the guy who came up with the idea of "commodity fetishism" - if you've never come across it before, the concept is just as strange and mystificatory as the phrase implies. You can read what Marx had to say about "the fetishism of commodities and the secret thereof" in Chapter One, Section 4 of Capital if you're so inclined (if you've never read him before, it can be a fairly tough read). For our purposes here, suffice to say that commodity fetishism is what happens when relationships between real human beings are transformed into relationships between things, a distinguishing feature of capitalism as a social and economic system. Those iPhones don't come packaged with the pictures and life stories of the Chinese factory workers who made them, do they?

So it might seem odd at first glance that James Livingston draws heavily from Marx's critique of commodity fetishism to mount the defense of consumer culture at the heart of Against Thrift. His use of Marx's categories can be a bit tricky, and since you won't fully understand the book's argument without understanding this point, I'll try to walk you through it as clearly as I can.

Marx argued that all commodities carry within them two basic properties: a use value and an exchange value. As Livingston notes, use value implies "a particular, subjective, mostly material meaning" while exchange value implies "a placeless, objective, monetary meaning. Every commodity raises, or just is, a question that divides our attention: what is this thing good for, and what is its price?" (xiv) If you're having trouble following this point, just think of a home. A home might well be worthless in market terms, but that price can't capture what a home might mean to you in an emotional sense, as a site of memory.

This point about the two-fold nature of commodities is related to a larger point concerning the basic nature of economic activity in human societies. Following Marx, Livingston observes that in all of human history before capitalism, "the consumption of goods was both the goal and the limit of production." (xiv) That process of simple commodity circulation can be represented in the formula C-M-C, where C stands for "commodity" and M stands for "money." In such an economy, "the point of producing and selling goods was not to accumulate ever more exchange value, more money in the bank, but to acquire just enough use values, just enough material goods, to validate your accustomed way of life." (xiv) The motto of such a society might be "enough is enough."

But capitalism operates according to a different sort of logic. In a capitalist system, the point is not to produce goods and services simply for the sake of consumption, but to use money to make money. The commodity is more or less incidental to the process (though in order to make money, you need to produce something that people might actually want to buy - it has to have some sort of potential use value). With the advent of capitalism, people in greater numbers began to produce not for their own direct consumption, but rather sold their labor power in return for wages that would be used to buy the things they needed to live. It's the difference between growing your own food and taking your paycheck down to the grocery store. Instead of simple commodity circulation and its attendant formula of C-M-C, we now have the "formula for capital," or M-C-M'. The first M still stands for "money" and the C still stands for "commodity," but the M' stands for something like "profit." In such a system, as Livingston observes, money in the abstract becomes the end of goods production "while use values - particular, material things, even human bodies - became the means to more exchange value, more money in the bank, rather than ends in themselves...consumption gave way to accumulation as the proper goal of the good life." (xiv) The motto of such a society might be "there's no such thing as enough," as the accumulation of money is, at least in theory, limitless.

So what does all of this have to do with Livingston's defense of consumer culture? How can Marx's critique of commodity fetishism under capitalism possibly be used to defend what appears to be capitalism in its purest form?

For Livingston, the value of consumer culture is that it has the potential to place limits on the accumulation of abstract wealth by asserting the logic of simple commodity circulation - by putting use value in the way of exchange value. To make this point, he offers the example of a car. When you buy a new car, it loses market value the second you drive it off the lot but its use value increases. You can now use it to get to work, impress the opposite sex, or whatever else you want or need to do with it. As Livingston argues,

"your purchase has removed the object of your desire from the domain of commodities: its significance no longer includes its price, even when others recognize how much it cost you, because everybody knows that if you put it back on the market, you'll get less than what you paid for it...the thing you've bought now has only a use value: it's been 'defetishized' by your purpose."

As we observed in the first post in this discussion, Livingston's argument is both economic and moral. He wants to defend consumer culture not just because expanded consumption can drive economic growth. He also wants to encourage the formation of new character types that are not beholden to the Protestant ethic of thrift and self-denial because he thinks it will be good for our souls. For him, enjoying the present doesn't entail sacrificing the future. Rather, it "teaches us how to produce and preserve the things our children might want or need - the things they might use." (xv)

What do you make of Livingston's basic argument about the value of consumer culture? Is he defending the indefensible, or is he on to something potentially important? In a recent and basically positive review of the book, the academic Michael Fisher claims that if we follow Livingston's logic "we end up mired in a wasteland of goods aplenty," beset with insecurities that can only be temporarily calmed by an unending stream of ever new sensory experiences. What do you make of that criticism?

Wednesday, April 4, 2012

Keynes on "Economic Possibilities for Our Grandchildren"

Before delving into Livingston's book, it may be useful to locate the work within a longer tradition of economic thought that can be traced back to John Maynard Keynes, the British economist who revolutionized the field in the 1930s and 1940s. There is no single Keynesian tradition or persuasion; conservatives, moderates, and radicals can all be grouped under that banner. Though Livingston draws from a wide array of intellectual sources and traditions, it's not too much of a stretch to characterize the argument presented in Against Thrift as a contemporary statement of radical Keynesianism.

This isn't simply because Keynes figures heavily in the empirical economic arguments advanced in the book. It's because Livingston shares Keynes' utopian vision of the cultural and spiritual possibilities opened up by the last century of economic growth and development. One can best understand how Against Thrift can be situated in the radical Keynesian tradition by consulting Keynes' short but incredibly far-reaching essay on "Economic Possibilities for Our Grandchildren."

I won't go into the details of Keynes' essay here because it's so wise and delightful that you should go and read the thing yourself. But to summarize, Keynes argued that humanity's basic economic problems would be solved within roughly one hundred years (from 1930), and that the age-old problem of scarcity would give way to the problems posed by abundance and leisure. The love of money for its own sake would be rejected as "a somewhat disgusting morbidity" while economists would be reduced to "humble, competent people on a level with dentists." Instead of worrying about whether we could feed, clothe, and shelter ourselves, we'd have to worry about what we'd do with all of our free time now that robots were doing most of the socially necessary work.

In particular, Livingston shares Keynes' excitement at the possibility that self-denial and delayed gratification would pass into history, resulting in radically reshaped character types, psychologies, and modes of living.

But that's enough of my rambling for now; let's hear what you all have to say. Do you share Keynes' optimism for the future? Despite the current gloominess surrounding the economy, what economic possiblities do you envision for your lifetime and for your grandchildren?

Tuesday, April 3, 2012

Against Thrift: Why Consumer Culture is Good for the Economy, the Environment, and Your Soul by James Livingston

Everyone knows that when it comes to personal and public finances saving is good, spending is bad, and that investing in the future is always better than satisfying one's desires in the present. Many people who agree on little else would surely be able to come together on the basis of these righteous and time-honored principles. The enduring value of the Protestant ethic that Max Weber identified as the "spirit of capitalism" - hard work, planning, self-denial, and all the rest of it - is as self-evident to most people as the observation that the sun rises in the east and sets in the west.

If you're one of those people, James Livingston is here to smash your most deeply held beliefs and assumptions.

In his new book Against Thrift: Why Consumer Culture is Good for the Economy, the Environment, and Your Soul, Livingston, an historian and cultural critic at Rutgers University, seeks to make the case for a radical program based on "less work, less thrift, more leisure, and more spending" (x) to overcome the economic and spiritual malaise that afflicts our society.

His argument runs along two tracks: economic and cultural. In contrast to the vast majority of economists, he argues that sustainable growth does not depend on private investment based on corporate profits but rather expanded consumption. Instead of giving tax cuts to the supposed "job creators" that we hear so much about in our political discourse, incomes should be redistributed toward higher wages for working people. His cultural argument is grounded in a defense of consumer culture, a stance that places him at odds with not only many people on the political and cultural Right but also many of Livingston's erstwhile comrades on the Left. In contrast to those who complain that this country "doesn't make things anymore" - a lament that is just as much moral as it is economic - Livingston argues that consuming goods is just as complex a moral act as making them. For him work as such "is less important than, say, buying and driving a car, or choosing and wearing that little black dress." (x) Whereas even the best and most fulfilling kinds of work are going to entail some degree of alientation and drudgery, it is in the world outside of work - and particularly in consumer culture - where freedom and self-realization becomes possible. Perhaps most radically, especially coming from a person of the Left, Livingston makes the claim that advertising (the perennnial target of Adbusters, the cultural magazine widely credited with helping to spark the Occupy Wall Street movement) "speaks the last utopian idiom of our time" (xi)and should therefore be defended.

The book has received a good deal of attention from the media, so while you're waiting to receive your copy it won't be difficult to familiarize yourself with the basics of his argument. Your first stop should be Livingston's blog, Politics and Letters, which has lots of other good stuff besides materials pertaining specifically to the book.

Also, check out his October 2011 op-ed in the New York Times ("It's Consumer Spending, Stupid") as well as his recent appearance on the excellent radio show Against the Grain.

I'm looking forward to spending the next two months reading and debating this provocative book with all of you!