I have been thinking about this for some time and my conclusion is that capitalism is highly inefficient overall because it pretends to be highly efficient. In being highly efficient it treats labor — workers as human beings — as commodities that are bid for in 'the labor market," on the same level of other resources. There is some lip service to "human capital" but that refers mostly to knowledge workers and not "the lower classes" into which the former middle class is now slipping in developed countries under neoliberal regimes.
I do not think that there is any way to fix this and retain the fundamental principles of capitalism. However, capitalism is embedded culturally and institutionally now and it will be the work of ages to change with unless there are emergent circumstances that result in more sudden change as the world adapts to changing conditions — which is a distinct possibility.
In the meantime, the issue is how to make capitalism work better for all factors, especially labor, since labor is at a particular disadvantage, as Bill's analysis reveals. The MMT answer is largely through the introduction of the MMT job guarantee as price anchor with government playing the role of last resort.
I think that this may be an improvement over the current situation by relieving the conflation of work necessary for subsistence and work that produces a surplus over necessity. But I don't see it as addressing the actual issue, which is the issue of distribution of the surplus, which is fundamentally an issue of fairness and justice.
The issue cannot be solved without addressing fair return on capital, profit share and management share versus labor share, hoarding and the relation of wealth and status to institutional power and political power. These are the very issues that capital and management demand be taken off the table and they are in a position to do it,
Moreover, when forces into a compromise that increases the welfare state, TPTB immediately set about undoing it or at least diluting it in their advantage. Therefore, as long as the system remains in place positive change is temporary.
What his means economically is that there is always a demand deficiency, debt servitude, or unsustainably rising private debt that leads periodically to debt deflation and the scooping of resources for pennies on the dollar by those with deep pockets. And, as we saw in the recent crisis and aftermath, the outsized deficits went to rescuing the financial sector that caused the crisis, with no attached accountability, and the fiscal injection went largely to corporate profits without increasing the welfare of the middle and lower classes. "Trickle down," not withstanding.
What his means economically is that there is always a demand deficiency, debt servitude, or unsustainably rising private debt that leads periodically to debt deflation and the scooping of resources for pennies on the dollar by those with deep pockets. And, as we saw in the recent crisis and aftermath, the outsized deficits went to rescuing the financial sector that caused the crisis, with no attached accountability, and the fiscal injection went largely to corporate profits without increasing the welfare of the middle and lower classes. "Trickle down," not withstanding.
William F. (Bill) Mitchell |Professor of Economics at Charles Darwin University, Professor of Economics at the University of Newcastle, and inaugural director of CofFEE
Maybe we have to find something productive for 'the acquirers' to do without thinking that shipping them off to the gulag or killing THEM will be a long term solution ....
ReplyDeletethese people have to have some sort of constructive purpose or value add for humanity or they wouldn't be there according to Darwin... their type wouldn't have evolved in the human...
They are not parasites as that is a false metaphor as parasites do not come from among the same species as the host....
rsp
Keynes had the solution for capitalism. Euthanize the rentiers. It's the hoarding of real and financial resources at the top that's the problem.
ReplyDeleteThe solution, as Michael Hudson has said, is to introduce a disincentive to hoarding by taxing away maldistribution of the surplus and using public spending to stabilize circular flow at optimal use of resources for distributed prosperity. This doesn't mean absolute equality but shared prosperity.
Progressive taxation and regulation along with a strong welfare state with ample public investment is capable of doing this, but TPTB strong resist this even though their absolute share would be greater with a greater pie. Instead they seek relative dominance through the control that extreme wealth and power provide the ruling elite.
Capitalism is as much a (sick) state of mind as an economic system. Capitalism is just another control trip run on the rest of society by control freaks seeking their own advantage.
Things have pretty much been so since the advent of societies with surplus economies. Neoliberalism is just the latest iteration of it.
It's not just a question of the US or the developed world. We now have to consider the global economy as a closed system, the challenges that humanity faces, and the opportunities as well. The level of inequality is great and growing.
This doesn't bode well for a peaceful and prosperous world, or a species meeting the challenges it faces adaptively through coordination. Rather, it's a recipe for disaster.
Tom,
ReplyDeleteMaybe the acquirers purpose is to see to it/facilitate that things are looked after by the laborers, protected by the warriors and learned about by the intelligentsia...
Not that this means anyone is "better" than the others... or is "more deserving" etc.... it could perhaps be looked at as a "team effort"....
I don't know about this 'euthanize' mandate, strong word there .... if these people are there, I would think that under evolutionary type thinking, there is a purpose for them...
The whole 'rent seeking' problem seems to stem from the gold standard mentality where the capitalists hoarded the scarce metals... so now we have unlimited fiat (moron view excepted) so perhaps this can be somehow explained to the acquirers and then the laborers, warriors, intelligentsia can take robust incomes out of the system even if the income is used to "pay rent" so to speak... a lot of the non-acquirers just seem like they want to do what it is they do they just want to be paid an appropriate amount to do it...
Let these acquirers hoard up whatever it is that they want to hoard (they cant take it with them in the end...) as long as the others continue to enjoy robust income flows while doing what it is they want to do...
rsp,
rsp,
Of course Keynes was joking about "euthanize." He likely used the term to emphasize sine qua non. Saving kills demand and the demand leakage to saving hobbles circular flow.
ReplyDeleteIf all the classes are in balance and do their jobs as a team, there is harmony. But when they don't then disharmony and eventually havoc results.
Acquisitors are psychologically equipped to acquire and when they hoard, they short-circuit the flow. If they invested productively and abjured rent-seeking, there would be no parasitism.
But where there are parasites, they need to be eradicated for the health of the system, or if intelligent, re-educated and shown were they haven't got it right. If they still resist, well then, tax away the hoarding.
Couldn't one refrain from calling "labor" a "factor" of production?
ReplyDeleteIt is true that it makes intuitive sense to see a product P as the result of multiplication
P = I*E*L
where P means inputs used up, E means operating time of a kind of equipment, L means exerting time of a kind of labor.
But when one speaks of "returns to labor" (or "returns to capital") one means income to people - people.
People can behave as equipment (machines) but people are not equipment - not factors, not "resources" as in "human resources", not the "talking looms" of Aristotle.
Therefore, they should not be spoken of as factors - or so it seems to me.
I agree, Paulo. We need a new frame and new terminology that fits the actual situation.
ReplyDeleteThere are people taking risk through investment, people providing higher levels or knowledge and skill, with the criteria of "higher" largely based on level of education and experience, and people providing lower levels of knowledge and skill, largely based on training and experience. Often producers are also self-employed or entrepreneurs, investors in equity shares, or co-owners in employee owned companies and co-ops.
There are almost no people providing sheer brawn anymore, since they have been largely replaced by technology in industrialized countries and can easily be replaced by technology in developing countries.
Every good investor and manager knows that business is first and foremost people. Conventional economists, not so much.
There is no "natural" power structure involved. Power is imposed culturally and institutionally, and power could be distributed differently, for example, based on criteria such as social harmony and equity, which come down to fairness and reciprocity.
This is evident to those with a more universal outlook, greater empathy, and more awareness of unity in difference.
There are already successful organizational and management models, such the cooperative, exemplified in the success of Mondragon, and the non-hierarchical lattice system of organization and management developed by Bill Gore, whose company is better known for Gore Tex®.
This would involve rebuilding conventional economics and organization and management theory from the ground up, testing and refining it, and then institutionalizing it to replace the broken system now in place. But a lot of the work has been done already and there are some fully functional models with impressive results.
As usual Professor Mitchell makes it as clear as clear can be.
ReplyDelete"They are not parasites as that is a false metaphor as parasites do not come from among the same species as the host...."
ReplyDeleteThey are in different groups, separated by the net flow of savings (funds) within a closed system…
One group is parasitic upon the other…
When one groups financial resources are exhaused the other group ceases to net save…
The system stops.
They are parasitic to the system.
Just one criticism of the above article: in what sense is JG a “price anchor” any more than the unemployed are a price anchor in a system where there’s no JG?
ReplyDeleteIn both cases, given rising demand for labour, a rise in the price of labour is prevented by a flow of people from the ranks of the unemployed or JG to regular jobs.
According to MMT economists, the MMT JG (as distinct from the way others have presented a JG program without reference to a price anchor) is due to the hourly compensation set by the government establishing a fixed rate that function as price anchor not in terms of a commodity like gold but the value of labor. The idea is that other prices of labor are set off that, and labor is the chief economic cost of production. The Fed judges the inflation level as much by the labor market as the goods markets.
ReplyDeleteSo a unit of the currency is valued in terms of the price that government sets as monopolist by what it is willing to pay for an hour of unskilled labor, instead of, say, an ounce of gold. That's the rationale anyway.
Tom, The term “price anchor” implies that the “anchor” stops prices rising (in this case the price of labour). I assume that’s what MMT “anchor enthusiasts” have in mind. However, given excess demand, the anchor just ain’t going to work. That is, JG can offer $5/hr for unskilled labour if it likes, but if employers are desperate for more labour, they’ll just ignore that, and offer above $5/hr.
ReplyDeleteThat's OK, Ralph, and in fact it's intended. The JG as a buffer stock is expected to shrink in good times as the demand for unskilled labor rises, and the buffer expands in bad times and unskilled labor is laid off first and most.
ReplyDeleteThe price anchor is not supposed to eliminate price rises but to control them. There are papers by MMT economists about this, with simulations. So it's not something that they have not taken into account.