Sunday, February 27, 2011

Rising resource costs and the global push for austerity

Professor James Galbraith recently gave a speech about the impact of rising resource costs for economic systems. The main thrust of the speech was that with the increase in the cost of resources (oil,minerals,food,etc.) business firms face the threat of diminished profits. Galbraith presented three possible scenarios in which firms attempted to deal with this threat to profits.

The first scenario was what Galbraith called the "Chinese Model". In this scenario, Chinese firms continue to operate even though they regularly fail to make a profit. The support of the government banking system and the acquisition of a large number of long term resource contracts shields the firms from the trend of rising resource costs.

The second scenario is what I call the 'Green New Deal". Here, the approach is to adapt to a world of rising resource costs. A concerted effort to use/develop lower-cost resources (alternative energy) and increase efficiency results in the preservation of both firm profits and societal living standards.

The last case is the darkest and the one I fear is transpiring before our very eyes. Firms actively resist Schumpeter's creative destruction and instead put the onus of rising resource costs on workers. They do this by capturing/incapacitating government and dismantling the social welfare system.

Judging by the austerity wave traveling through Europe and the war on unions and government intervention in the U.S., it is evident that Western firms have chosen to declare war on workers and statism. The questions that immediately spring forth in my mind are: will they succeed and if so,what comes next?


Tom Hickey said...

What comes next? Falling effective demand, contraction, mortgage defaults, debt deflation, and depression in the developed world, resulting in social unrest, which when rebuffed turns into voter revolt and the end of neoliberalism.

I don't see Western workers going back to the 19th century quietly. Not going to happen as long was we have democratic elections in the West. People are well aware that there is no shared sacrifice with corporations and banks flush and the middle class and poor being forced to bear the brunt of other people's mistakes and crimes. You can't fool all the people all the time, no matter how much money you have.

Joseph Schumpeter, Capitalism, Socialism, and Democracy (1942)

Strauss & Howe, The Fourth Turning (1997)

Ravi Batra, The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos (2007)

L. Randall Wray, "The Great Depression and the Revolution of 2017" (satire)

Everything seems to be right on track. There is already a revolt against neoliberalism underway throughout the world. Stay tuned.

mike norman said...


They may make a noisy exit, but an exit it will be, for who is their advocate? No one. There is no longer a political party that stands up for worker rights as the monied interests that run the country have now "bought" the Democrats, too. This has become very obvious from recent evcents.

Matt Franko said...

We have had the Iceland rejection of the package to pay back foreign depositers in their corrupt banks by I believe 93% in a referendum vote (albeit a referendum they were lucky to obtain).

Now another key vote is coming up in Ireland. I believe the sitting govt there put on the same types of austerity measures as were rejected in Iceland, an now a new election is coming up in March where Ireland voters can perhaps reject the sitting govt and put in a new govt to roll back the deal....

Lets see how Ireland goes.

If BFG reads this can BFG give a brief update to how it is shaping up for the vote in Ireland?


bubbleRefuge said...

Great article in Vanity fair by Michael Lewis on Ireland. I think you have to subscribe or buy the physical magazine.

Mario said...

yup it's pretty sinister. I like tom's reference in past comments to the "superclass" b/c that's pretty darn accurate to it all.

In regards to Mike's comment about no real leader for worker's rights these days...that may be true, but you know things just have a tendency of working themselves out anyway somehow, someway.

Not to get too weird on you all but astrologically we are moving out of the piscean age and into the aquarian age...translation? One way to look at what that means is that we are moving away from individual leaders leading a group to a conglomerate group of individuals leading itself (aka group consciousness based upon empowered individuals) rather than a group lead by one person or visionary. The events in the ME speak to this type of action pretty much to a "T."

As Hamlet says, "There is more between heaven and earth than your philosophy dear Horatio." ;)


MT :)

Mario said...

also just the very existence and nature of the internet speaks to the essence and function of the aquarian age as well...which was a big part of the ME events too as we all know. Cultures move internally as well as in parallel in fascinating and powerful ways. Marx was a true genius imho. :D