Marx continues to be stupid 200 years on. Here’s a piece in Bloomberg by an evidently respectable economist who wants to claim that Marx was prescient after all, just maybe a little behind schedule.
The wily philosopher’s analysis of capitalism had a lot of flaws, but today’s global economy bears some uncanny resemblances to the conditions he foresaw.
“Uncanny,” ladies and gentlemen. As in “almost supernaturally” prescient. OK, well, let’s hear his examples.
Consider, for example, Marx’s prediction of how the inherent conflict between capital and labor would manifest itself. As he wrote in “Das Kapital,” companies’ pursuit of profits and productivity would naturally lead them to need fewer and fewer workers, creating an “industrial reserve army” of the poor and unemployed: “Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery.”
The process he describes is visible throughout the developed world, particularly in the U.S. Companies’ efforts to cut costs and avoid hiring have boosted U.S. corporate profits as a share of total economic output to the highest level in more than six decades, while the unemployment rate stands at 9.1 percent and real wages are stagnant.
Hmmm. Well, if my math is right, six decades ago was the 1950s, which was hardly a time of capitalism run amok. The US had just emerged from WWII and was getting bogged down in Korea. During WWII, the economy was as controlled as any economy in the history of the world has ever been. Throughout the 50s, maringal income tax rates on the highest income brackets would be in the 75-90% range while the country paid off its debts. Labor union activity was possibly more energetic in the 1930s, but it had never been more successful, and the exceedingly generous wage and benefits packages of now-notorious outfits like the UAW were just being negotiated. Unemployment was considered high at 2%. So, it seems that the inherent confict between capital and labor isn’t the only thing that drives corporate profits sky-high. I wonder if Marx had any thoughts on that?
So there are any number of causes of high corporate profits relative to the rest of the economy, one of which happens to line up in a plausible-sounding way with something Marx said. Therefore Marx was prescient? Is that what prescient means?
Marx also pointed out the paradox of over-production and under-consumption: The more people are relegated to poverty, the less they will be able to consume all the goods and services companies produce. When one company cuts costs to boost earnings, it’s smart, but when they all do, they undermine the income formation and effective demand on which they rely for revenues and profits.
This problem, too, is evident in today’s developed world. We have a substantial capacity to produce, but in the middle- and lower-income cohorts, we find widespread financial insecurity and low consumption rates. The result is visible in the U.S., where new housing construction and automobile sales remain about 75% and 30% below their 2006 peaks, respectively.
So, whether a consumption rate is low or high is measured against its peak? Well, by that definition, consumption rates will be low in every year except the peak year, right? Which is to say, they will be low most of the time. That doesn’t strike me as a very meaningful way to measure things. Even if the point is that consumption rates are dramatically lower now, it’s undermined quite a bit by the fact that the selfsame author writing in the selfsame essay not two paragraphs earlier gave us a good reason to believe that the 2006 consumption rates he’s now citing as his reference point were artificially high. Here’s the relevant section:
U.S. income inequality, meanwhile, is by some measures close to its highest level since the 1920s. Before 2008, the income disparity was obscured by factors such as easy credit, which allowed poor households to enjoy a more affluent lifestyle. Now the problem is coming home to roost.
Does he expect people to read his essays or just skim them for the bottom line, one wonders?
So how do we address this crisis? To put Marx’s spirit back in the box, policy makers have to place jobs at the top of the economic agenda, and consider other unorthodox measures. The crisis isn’t temporary, and it certainly won’t be cured by the ideological passion for government austerity.
Well, maybe I read a different Marx, but I don’t remember job creation being his primary concern. I thought it was something to do with who owned the means of production. But OK, even reading fantasy Marx, where it was all about full employment and aggregate demand (my, but wasn’t Keynes a plagiarist?), this bit about government austerity is a bit of a non sequitur, no? The only people I’ve ever heard claim that “ideological passion” would cure anything are Marxists, for one thing. I’ve certainly never heard a Libertarian say any such thing. And while there probably really are some people here and there who think that cutting the budget will fix everything, that’s hardly the prevailing view, even among the Tea Party. I think the argument is more that we’re in a big mess that it will take a long time to get out of, and that massive government spending/intervention will only distort economic truths that are better confronted and dealt with head on. At best it merely postpones the crisis, at worst it makes it longer and harder to deal with down the road by treating the symptoms without addressing the cause. I don’t believe anyone has seriously proposed austerity measures as a panacea; what they have done is suggested that government austerity is a good first step. If nothing else, it lightens the tax burden on corporations who then have more money to hire with.
Now, what comes next is a fairly standard slew of suggestions – allow for some debt forgiveness, prop up the banks, cutting payroll taxes, target nominal output (i.e. indulge in some inflation) – precisely none of which I remember reading anywhere in Marx. In fact, if I’m not mistaken, these are all things that Marxists (if not Marx himself) typically sneer at as weak attempts to prop up a crumbling crony system – bread and circuses to keep the masses complacent. Remember, in Marx the crisis of capitalism ends with a worker revolution which establishes a dictatorship. Just sayin’.
We’re not in a crisis of capitalism. We’re in a crisis of excess capacity, probably, but that’s not a bad thing. Excess capacity will eventually be used – we just have to figure out how to do it. I’m on Arnold Kling‘s team here: the trouble is that we need new employment and investment patterns – new types of jobs – but the process of finding out what those are is only as fast as inspiration hits. Inspiration is a highly unpredictable thing.
Anyway, I don’t see what Marx has to do with anything. In the first place, this author needs to make up his mind if the cause of the layoffs is efficiency or the credit crunch. He seems to want it to be efficiency, and yet the crisis started with a credit crunch. Not addressing how that happened tends to squeeze his credibility. Second, since it’s blindingly evident that efficiency gains create both employment and wealth (that’s the effect of the industrial revolution, after all, which was nothing if not a giant efficiency gain), he needs to really explain why this time it’s different, and why this time, unlike all those other times, we’re at the point where efficiency gains only lead to increases in inequality. Why isn’t it the case that these efficiency gains, like every other efficiency gain in history, will eventually lead to increased investment, job creation, etc.? That they’re not doing it now is hardly proof that they never will – especially if Arnold Kling is right that it’s a matter of figuring out what to do with the excess capacity! Finally, saying that Marx got drunk, threw a bunch of darts in the general direction of a board, and got one of them to stick hardly proves that he’s much of a darts player. Everyone is right sometimes. The important question is whether we can turn to Marx for solutions, and since all the solutions offered here are firmly Keynesian and not the least bit Marxist, I’m really wondering why his name is in the title at all? For shock value, I suppose?