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In writing this diary I actually have been inspired by an excellent diary by gjohnsit and Krugman’s columns on Zombie Economics. Gjohnsit’s excellent diary (http://www.dailykos.com/...) had discussed a point raised by Don Patinkin (monetarist of the Chicago School) who had argued that a "lower standard of living is a good thing." I responded that this is an old argument in economics that keeps on being revived for clear political reasons, tracing its inception back to the wages-fund theory of the post-Ricardian period. Krugman’s columns specifically refer to Reaganomics and the idea that government intervention in the economy is always a bad thing (e.g., http://www.nytimes.com/..., http://www.chron.com/...).

However, upon consideration I believe that the term "zombie economics" is actually not a particularly good expression. Zombies imply a type of non-intentionality, at least in terms of how they appear in movies like "Night of the Living Dead" where the dead are coming out of their graves due to some bizarre viral, bacterial or meteorological event. That is, they are externally and accidentally caused and not due to the volition of others. Even in the case of the traditional less modern version of zombies where someone deliberately raises a zombie to frighten or terrify innocent people, this is a flawed analogy.  In many senses, these economic ideas are different; they have strong policy and political implications and they are deliberately revived by those seeking to use them to create havoc for the vast majority of people, they are not there to terrify, they are there to do real damage. These ideas are not allowed to die as they have a very important function.  Perhaps in some senses, they are more like Dracula in the Hammer movies who just keeps on being revived by evil people or even for an character in a real historical situation, they are like Rasputin, who simply despite being poisoned, stabbed, and thrown in a river refuses to die. Perhaps they are even like Frankenstein, where many dead things are cobbled together and then shot up with electricity to be brought to life.  

In Krugman’s case, the problem is that he simply does not go back far enough in history of economic thought to find the genesis of these arguments; he is content to stop at Reaganomics, when their roots actually can be found in the classical and post-Ricardian period and then embodied within the long-period equilibrium model of neoclassical general equilibrium theory. This diary is meant to rectify some of this. I will concentrate on one argument (Say’s Law); sometime in the future, I will discuss the theory of wages.  

In many senses the attack on Keynes and the resurrection of Say’s Law form the historical basis of much of modern right-wing and neoliberal attempts to justify income inequality as sound economic policy. For once, being an historian of economic thought actually has come in useful, I see these arguments as regurgitated arguments that have been updated to fit into modern discussions of theory and policy. While I have already covered some of this in older diaries and I’ve cited the diaries where appropriate, I have not really pulled things together tracing it through the neoclassical theory.

Before I begin, I want to put these historical economic ideas in context. James Mill (father of John Stuart and close friend of Jeremy Bentham whose ideas of lesser eligibility were used in the 1834 Poor Law Amendment as the criteria for Poor Relief), NW Senior served on the 1834 Poor Law Commission. JR McCulloch, James Mill, NW Senior and JS Mill were well known liberals (or Whigs) of the time advocating free-market or Laissez-Faire economic policies. This is the 19th century Liberal Argument. Keynes is also a Liberal (he was intensely distrustful of socialists like the Labour Party and loathed communists). We are looking at the transformation of economic policy amongst the Liberals. What we are seeing now with neoliberals and conservatives upholding Say’s Law now (after it has been demonstrated to be fallacious both theoretically and historically) is a shift on the part of economic Liberals back to the pre-Keynesian argumentation.

Say’s Law or Mill’s Law of Markets, General Gluts and Underconsumption Arguments:

Smith and pre-Say’s Law consolidation:

If we begin by looking at the writings of Adam Smith specifically on growth and the division of labour and effective demand, Smith notes that by far the greatest increases in the productive power of mankind is due to the division of labour (http://www.dailykos.com/...).   However, it is quite evident that Smith links the extent of the division of labour to the limits of the extent of the market. That is, that technological innovation resulting from the division of labour, the extent of the division of labour itself, and economic growth is essentially dependent on the level of development of the market, specifically the effective demand of the various domestic classes (and international demand) for the goods and services produced by industry.

As such, Smith does not maintain that what is produced will be automatically consumed. The level of development of the economy will be constrained by the effectual demand of purchasers for goods and services. In order to deal with this, a theory of output discussing the demand of the various classes (Masters/Capitalists, Landlords, and Workers) becomes relevant as each class uses their income to purchase different commodities and uses their income differently; it is assumed that only masters, or capitalists, both consume final goods and invest, workers are assumed to spend all their wages, and landlords basically purchase luxury goods. Essentially, the demand of the various classes determines the level and composition of output. In his discussions of wages, we often see Smith supporting high wages for workers, this is due to two arguments, workers spend all their wages and their effective demand increases the demand for goods that they purchase. Smith’s ire was totally confined to the landlords who spent their money on luxury goods and who got a remuneration for the use of their privately owned land in production, he described them as people who reap what they haven’t sown. Smith does not make any claims with regards to general overproduction or underconsumption and does hold that at natural price levels, commodities would be sold covering the natural rates of wages, profits and rents (which implies that there is no general overproduction or underconsumption and that these will be solely market phenomena specific with regards to the production of certain commodities).

The value of general output is equal to the general remuneration of workers, landlords and capitalists:

PY = wL + (1+r) K + tT

PY = {wL + K} + {rK + tT}

In the classical theory {wnL + K) represents that part of output which is called necessary consumption, assuming that workers only obtain a subsistence wage, it is that part of output that is needed to replace the economy at the same level (you need to feed your workers and cover their reproduction and replace capital used up in the production process). {rK + tT} represent the surplus portion of the product that would be used for economic growth that if the product is sold at the natural price would go to capitalists as remuneration for investment and to landlords for use of the land. If workers are able to get a portion of the surplus product (as postulated by Smith and Ricardo during periods of economic growth) then the surplus portion of the wage over and above the amount needed for subsistence and reproduction is taken from that going to profits (as rent is normally negotiated in longer term contracts) and the surplus portion would be divided between ws, r and t and the value of output can be written as:

PY = wnL + K + wsL + rK + tT

If when commodities are taken to market, they are not sold at the natural price either because too much or too little has been produced and brought to market relative to the effectual demand, then one of the component parts of price will be paid at less/more (respectively) than the natural level, usually profits. This will lead to less being produced next production period and capital moving to another sector of production in search of higher profits. But this is only a specific market (relating to one sector) phenomenon and is not a general economic phenomenon. This is why people have argued that Smith has some sort of early version of Say’s Law.

The consolidation of Say’s Law

Say’s Law (http://www.dailykos.com/...) actually was added to economic theory by James Mill (1804) as Say’s arguments really did not sit within the classical economic doctrine (his arguments on distribution and price determination determined by supply and demand made him seem a bit of a crank as these were considered to affect only market prices rather than the natural prices).

Mill’s Law of Markets said that production created its own demand. In other words, whatever was produced would be sold at the natural price in which the costs would be covered and the profits realised, (while it was recognised that there would be temporary gluts and shortfalls of different commodities at various markets, it was seen that these would not affect the determination of the natural price levels). The introduction of this argument essentially eliminated the importance of a theory of output in mainstream economic arguments from that point onwards until Keynes and Kalecki introduced the theory of effective demand.

Malthus and General Gluts:

While there were dissenters to the doctrine (especially Malthus and Lauderdale), it became the dominant economic argument. Malthus’s comments are especially interesting only because Keynes finds them interesting (see Keynes’s Essays on Biography). Malthus argued that we can never be certain of realisation of the product at a price which covers the natural rates of wages, profits and rents. He articulated a crisis argument of general gluts or general overproduction or underconsumption where the level of effective demand provided by working people was insufficient to cover the goods produced. He maintained that it was the unproductive consumption of the landlords purchasing imported luxury goods that were purchased with the overproduced goods sold overseas that prevented underconsumption crises or that they would purchase the overproduced goods directly; hence he argued for high rents for the landlords to prevent general gluts (nothing like covering the needs of your really wealthy friends).

Savings and Investment and Implied Economic Policy

Say’s Law also has an additional meaning beside the idea that production creates its own demand. It is the idea that savings determines investment, that is, whatever savings exist will be invested in future production. Since economic growth is not constrained by effective demand, savings and investment become the only constraints upon economic growth. This is very important as it is this notion that gains increasing dominance and which is transferred from classical economic doctrine into neoclassical or marginalist economic theory that developed in the 1870s.

Why is this important? The idea that investment and hence future economic growth essentially derives from the savings of the rich means that we have an argument on which to justify high profits and low wages as it is these high profits that make the economy grow.

A small digression on Savings, Capital and determination of the rate of profits:

Again, we can look to James Mill as the father of these arguments. In the 2nd edition of Elements of Political Economy (1824), Mill adds a whole discussion on capital, where he described how difficult it is to increase the size of capital as compared to increasing the size of the labouring population (this is very relevant for the discussion of wages) as it requires abstention from consumption and savings rather than consumption which means possible decreases in the size of legacies for heir and risk. This is the first time that an argument discussing the genesis of capital has been articulated and it has been done to justify the right of capitalists to obtain profits. This is then developed into an argument called the abstinence theory of capital and profits by NW Senior, G Poulett-Scrope. This is then further developed into the Austrian version of capital theory linking the size of remuneration (r) to the length of time in which capital has been tied up in the production process and to the turnover of capital (see Wicksell, Bohm-Bawerk and Hayek).

A quick digression on wages and poverty:

Going back to James Mill again and wages, this difficulty of increasing the amount of capital for investment becomes an incredibly important consideration especially to the wages-fund authors (James Mill, JR McCulloch, NW Senior of 1834 Poor Law Amendment fame).  In the early classical authors wages are taken as a given in the determination of the rate of profits and are determined by the notion of social subsistence and are essential to the reproduction of the working class as a whole (, for Smith on wages:  http://www.dailykos.com/...
http://www.dailykos.com/...
http://www.dailykos.com/..., for Ricardo on wages: http://www.dailykos.com/...) . Employment and unemployment depend on the level of accumulation of capital which is used to employ the working class and the available technology. Poverty and unemployment are the fault of the economic system due to insufficient accumulation of capital to employ the available working population. In the wages fund theory (http://www.dailykos.com/...), wages are flexible and full employment of labour is assumed. In its static version, wages are determined by the relationship between the quantity of capital in relation to the quantity of labour to be employed. Dynamically, there are two ways to increase wages: 1) increase the quantity of capital which is used to employ it; and 2) decrease the size of the labouring population. Mill’s argument concerning the difficulty of increasing the amount of capital shifts the responsibility for poverty away from the economic system towards the poor and working classes that are lazy, dissolute and unable to control their own breeding. The fact that Malthus’s principle of population is incorporated into wage determination first inconsistently by Ricardo and then plays such a prominent role in wages-fund authors helps explain and justify the fact that worker’s wages are so low: according to Malthus, if workers’ wages are increased due to either social policy (like the Speenhamland amendments or raising wages), they will essentially breed so as to obliterate the increase and will remain poor; moreover, we have decreased the wealth of those that ensure economic growth to do so. Addressing income inequality essentially becomes a futile exercise that impoverishes all.

Say’s Law and Keynes:

Essentially, Say’s Law remained predominant in economic theory until the Keynesian revolution. What is the importance of Keynes’s and Kalecki’s theory of effective demand and why has it been under attack since it was written?

Keynes’s version of the theory of effective demand essentially reverses the causality from savings determining investment (and supply determining demand) to investment determining savings (and effective demand determining supply). In Keynes, it is the effective demand for commodities that determines the level and composition of output and the current employment of labour, expected effective demand determines investment, growth of employment and output, savings and economic growth. The importance of the notions of the marginal propensities to consume and to save is relevant in this discussion, as it is effective demand which drives the system; to increase growth, we need to increase effective demand, and specifically we need to increase the effective demand of those who primarily spend their income.

That is the basis of the theoretical justification for the social welfare state: it not only was meant to cover the most desperate. The effective demand of these people (who at the time really didn’t have much to spend) would provide the additional effective demand to enable further economic growth. Basic provision for the poor and higher incomes for the working classes means there is more effective demand for goods and services where there was little previously; this holds both statically and dynamically in the context of further economic growth. But it also means that the focus is taken off of the importance of high incomes for the extremely wealthy, investments that lead to economic growth (not short-term speculative investments) are contingent upon expected demand for goods and services, not the savings of the rich (increased wealth of the wealthiest). It is not savings that are important for economic growth, it is the investment that ensures economic growth that is what is important. Given that we can increase effective demand of those that primarily spend their incomes, then investments are directed towards those goods and services where there is expected demand and that will ensure high returns for investors. So, with economic growth, wages and profits can both increase together. The impoverishment of the poor and working class is not necessary to ensure economic growth, in fact, if their incomes rise, that is better for the economy as a whole to ensure economic growth.

Originally posted to NY brit expat on Fri Dec 24, 2010 at 11:18 AM PST.

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Comment Preferences

  •  Tip Jar (16+ / 0-)

    No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

    by NY brit expat on Fri Dec 24, 2010 at 11:18:37 AM PST

  •  Tarzan, Tonto, and Frankenstein (4+ / 0-)

    A little silliness because I don't have time to read this diary.  I'll follow this comment to the diary later, promise.  Meanwhile, Season's Greetings:

    He who blesses the poor, shall himself be blessed.

    by geomoo on Fri Dec 24, 2010 at 11:25:13 AM PST

    •  I knew it was a bad day as most people are (7+ / 0-)

      preparing for their christmas eve and christmas dinners. But since I was unable to fly to visit the relatives for the holiday due to an unexpected sinus infection, I decided to write. Happy Holidays Geomoo!

      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

      by NY brit expat on Fri Dec 24, 2010 at 11:28:10 AM PST

      [ Parent ]

    •  The more things change . . . (5+ / 0-)

      Had time to skim.  Very clever riff on the various monsters.  I take this to be the heart:

      I see these arguments as regurgitated arguments that have been updated to fit into modern discussions of theory and policy

      It makes one wonder how conscious is this revival of self-serving, theoretically bankrupt ideas.  This makes me think of a little-noted phenomenon during W's administration.  On the Department of State website, the following portion was deleted from Washington's Farewell Address:

      All obstructions to the execution of the laws, all combinations and associations, under whatever plausible character, with the real design to direct, control, counteract, or awe the regular deliberation and action of the constituted authorities, are destructive of this fundamental principle, and of fatal tendency. They serve to organize faction, to give it an artificial and extraordinary force; to put, in the place of the delegated will of the nation the will of a party, often a small but artful and enterprising minority of the community; and, according to the alternate triumphs of different parties, to make the public administration the mirror of the ill-concerted and incongruous projects of faction, rather than the organ of consistent and wholesome plans digested by common counsels and modified by mutual interests.

      However combinations or associations of the above description may now and then answer popular ends, they are likely, in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion.

      It makes one wonder how conscious these people are of their own subversive behavior.  It's disturbing to think they are historically well-informed and thus consciously choosing to promote policies antagonistic to the common good.

      He who blesses the poor, shall himself be blessed.

      by geomoo on Fri Dec 24, 2010 at 11:32:38 AM PST

      [ Parent ]

      •  I honestly think it is conscious and deliberate (2+ / 0-)
        Recommended by:
        Roger Fox, geomoo

        on the part of economists as they have their own political priorities. Anyone that knows a little economic history and minimal history of thought knows why Keynes put his arguments up when he did.

        Love the deleted quote from Washington's farewell address, interesting that some found this so unpleasant that it was deleted.

        No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

        by NY brit expat on Fri Dec 24, 2010 at 11:38:10 AM PST

        [ Parent ]

  •  I have been reading (6+ / 0-)

    Krugman's The Great Unraveling, and it's stunning how dead-on he was in his early assessments of Bush and the damage being done to the economy and the nation. Trouble is, Krugman was a new columnist and hadn't by 2003 gotten household-name status in the MSM.

    And thank you for this diary. I love wonky discursions like this, where I can settle down for a nice cozy read.

    Happy hols.

    One of the advantages of being disorderly is that one is constantly making exciting discoveries.--A.A. Milne

    by Mnemosyne on Fri Dec 24, 2010 at 11:28:44 AM PST

    •  Thank you for reading, I tried to keep it short (4+ / 0-)

      and kept on finding things that were not precise or were unclear and it just kept on growing. My suggestion is a nice warm drink like hot cocoa or mulled wine to read by ... Happy holidays Mnemosyne!

      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

      by NY brit expat on Fri Dec 24, 2010 at 11:31:55 AM PST

      [ Parent ]

      •  are you snowed in over there? (2+ / 0-)
        Recommended by:
        RunawayRose, NY brit expat

        Friends in Scotland seem to be out and about, but the lower UK looks awfully white in the satellite pictures.

        One of the advantages of being disorderly is that one is constantly making exciting discoveries.--A.A. Milne

        by Mnemosyne on Fri Dec 24, 2010 at 12:08:41 PM PST

        [ Parent ]

        •  We were buried under 6-8" (2+ / 0-)
          Recommended by:
          RunawayRose, Mnemosyne

          of snow in London last week. A bit of rain and a slight increase in the temperature has gotten rid of most of it, but there is still congestion at airports due to back-log of canceled flights. Snow fell yesterday in the north-east and midlands. Hoping that it will not make its way into London, they simply do not know how and when to salt roads and they do not do anything to sidewalks.

          No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

          by NY brit expat on Fri Dec 24, 2010 at 12:11:22 PM PST

          [ Parent ]

          •  oh dear. (2+ / 0-)
            Recommended by:
            RunawayRose, NY brit expat

            Stay warm and inside. We're past the Solstice, so spring IS coming.

            One of the advantages of being disorderly is that one is constantly making exciting discoveries.--A.A. Milne

            by Mnemosyne on Fri Dec 24, 2010 at 12:14:30 PM PST

            [ Parent ]

            •  lol, there are additional minutes of sun (1+ / 0-)
              Recommended by:
              Mnemosyne

              from now on until Spring. It gets dark really early over here as we are so far north. I cannot wait until it gets dark around 5 pm, that is when I know that things have really started to move in a positive direction! :)

              No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

              by NY brit expat on Fri Dec 24, 2010 at 12:22:19 PM PST

              [ Parent ]

              •  Where I am, sunrise was at 08.48 today. (1+ / 0-)
                Recommended by:
                NY brit expat

                And sunset was at 14.48.

                Obama stands with war profiteers, torturers, Wall Street, health insurance companies, Big PhARMA, Big Oil and Social Security-haters. Good at photo ops, though.

                by expatjourno on Fri Dec 24, 2010 at 12:45:01 PM PST

                [ Parent ]

                •   in London, sun was up at 8:05 am (1+ / 0-)
                  Recommended by:
                  expatjourno

                  and the sun went down 3:56 pm, today.

                  No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

                  by NY brit expat on Fri Dec 24, 2010 at 01:50:39 PM PST

                  [ Parent ]

                  •  Lucky you. I feel like hibernating. n/t (3+ / 0-)

                    Obama stands with war profiteers, torturers, Wall Street, health insurance companies, Big PhARMA, Big Oil and Social Security-haters. Good at photo ops, though.

                    by expatjourno on Fri Dec 24, 2010 at 02:06:37 PM PST

                    [ Parent ]

                    •  lol! Where are you? I always (2+ / 0-)
                      Recommended by:
                      Mnemosyne, expatjourno

                      wanted to hibernate also; usually it is not that cold here and we never have snow until February; 2 snowstorms in december is simply absurd for south england. I am glad I do not have seasonal affective disorder, being so far north would be a nightmare!

                      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

                      by NY brit expat on Fri Dec 24, 2010 at 02:47:02 PM PST

                      [ Parent ]

                      •  Stockholm. Unfortunately, I am solar-powered. (0+ / 0-)

                        Last winter, snow covered the ground from mid-December to mid-April. This year I think the snow came in November.

                        SAD is pretty unpleasant, yes. I'm tired all the time.

                        Obama stands with war profiteers, torturers, Wall Street, health insurance companies, Big PhARMA, Big Oil and Social Security-haters. Good at photo ops, though.

                        by expatjourno on Fri Dec 24, 2010 at 10:24:11 PM PST

                        [ Parent ]

                •  sounds as if (1+ / 0-)
                  Recommended by:
                  NY brit expat

                  you're even more northerly than London. Maybe farther over east in your time zone, too.

                  One of the advantages of being disorderly is that one is constantly making exciting discoveries.--A.A. Milne

                  by Mnemosyne on Fri Dec 24, 2010 at 02:47:52 PM PST

                  [ Parent ]

  •  as monsters go, the financials are more (1+ / 0-)
    Recommended by:
    NY brit expat

    mr. hyde, than zombie.

    Whatever action a great man performs, common men follow. And whatever standards he sets by exemplary acts, all the world pursues. The Gita 3.21

    by rasbobbo on Fri Dec 24, 2010 at 11:41:52 AM PST

  •  I am coming to understand how much (1+ / 0-)
    Recommended by:
    NY brit expat

    of a put up job is being pushed by the academic economic establishment. They have managed to abort much of what promised to be the Keynesian revolution. There does seem to be a rising current of people including George Soros who are calling for a reappraisal.

    •  The initial subsumption of Keynes's ideas (2+ / 0-)
      Recommended by:
      Richard Lyon, In her own Voice

      to the neoclassical synthesis where Keynes's theory of effective demand is relegated to the short-period was problematic in many ways, but at least these people were liberals and many worked for democratic presidents; it is the policy attacks initiated by the monetarists, then the theoretical attacks of new classicals and then real business cycle people. Much of the efforts of Keynesians following the stagflation of the 70s was devoted into finding new microfoundations for Keynes outside of the neoclassical general equilibrium model to justify keynesian policies; once again, the New Keynesians further limited Keynes to crisis situations only (even less than the old short-period argument of the neoclassical synthesis).

      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

      by NY brit expat on Fri Dec 24, 2010 at 11:57:51 AM PST

      [ Parent ]

  •  Isnt a middle class an unusual (1+ / 0-)
    Recommended by:
    NY brit expat

    thing, Thom Hartman says there were 3. Post Black Plague Europe, centered in the Netherlands - 1500 to 1600, then a American Agrarian Middle class at the time of the AM Rev. Then the 3rd, born out of the Great Republican Depression in the 1930's.

    It must be that in order to compete, if you have impoverished workers, they dont go to college, the number of elites going to college must be enough to drive technological development. I cant imagine this is true. So there must be another force that drives innovation besides education..... lol

    In the long run I see this as quite an inefficient use of labor, the best and the brightest sitting around frying burgers? At the beginning that was the purpose of the SATs, testing to see who the brightest were, and making sure they got into college. And thats good for business, more cool ideas for them to make money of off.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Fri Dec 24, 2010 at 12:15:37 PM PST

    •  I would also recognise the rise of (1+ / 0-)
      Recommended by:
      Roger Fox

      professional classes during the industrial revolution, that is whom the term the middle classes initially referred. These people were distinct in many ways from traditional working class people both in terms of class allegiance and also in terms of the type of work that they did; clerks of all types, accountants, doctors, teachers, nurses ... these required education and the remuneration was higher.

      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

      by NY brit expat on Fri Dec 24, 2010 at 12:20:31 PM PST

      [ Parent ]

  •  For the rich, inequality is a feature, not a bug. (4+ / 0-)

    At any given level of wealth, a rich person feels richer when he sees more people in the gutter.

    I've hotlisted this because I'm a little too tired to study it, but it looks right to me. I studied economics at UCLA, which had (and maybe still has) a right-wing (monetarist) department, so I'm pretty familiar with those arguments. And I've aid attention to the world around me, so I know they're bullshit.

    Thank you for doing this. It'll be a great refresher for me.

    Obama stands with war profiteers, torturers, Wall Street, health insurance companies, Big PhARMA, Big Oil and Social Security-haters. Good at photo ops, though.

    by expatjourno on Fri Dec 24, 2010 at 01:01:23 PM PST

    •  this diary requires some (2+ / 0-)
      Recommended by:
      expatjourno, In her own Voice

      knowledge of economic arguments to understand; you are completely correct, for the rich inequality is a feature of the system and moreover the system increases inequality both in wealth and income unless extremely regulated.

      I hope that you enjoy it, I really find it amazing that ideas which have been demonstrated to create instability and additional problems and which have been discredited are constantly resurrected in economics.

      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

      by NY brit expat on Fri Dec 24, 2010 at 01:54:05 PM PST

      [ Parent ]

  •  I've been intrigued by (2+ / 0-)
    Recommended by:
    In her own Voice, NY brit expat

    why US unemployment didnt come down to normal levels thru 1934-1941, but yet - almost like a switch was turned, we went to a labor shortage by 1942. Yeah I know, 12 million served in the military, but not all 12 million signed up right away.

    My take is that many things were stirring the pot, Passing of Child Labor laws '37-'38, meant 11 and 12 yr olds were taken out of the labor force and put in school. add in the 40 hr work week, down from 60-90. Minimum wage. And more.

    Everything seems fine after WW2, for a good 35 yrs. Though in a recession unemployment might spike up past 10 or 12%.

    In the 1930's much of the US economies ability to quickly return to normal employment levels was destroyed, the financial infrastructure crushed and the physical infrastructure was old/noncompetitive. Then you bring in the WPA, CCC and 79% top rates, and the rest of the new deal.

    Was the lingering unemployment levels a result of: oh crap, we have never had an economic collapse this size in modern history. And then you throw in all the New Deal Policies, and its just going to take a while for all this to shake out, war or no war........

    Thoughts?

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Fri Dec 24, 2010 at 01:15:23 PM PST

    •  sorry for disappearing, we sat down for (2+ / 0-)
      Recommended by:
      Roger Fox, In her own Voice

      dinner.

      I am not a specialist on economic history of this period and I have heard and read many different arguments as to why unemployment lingered for so long. It may be a combination of things given the depth of the crisis, the fact that it took some time for the policies to take hold, the initial limited version of the New Deal, that some of the direct government jobs creation was not long term, but only created temporary employment (this boosted effective demand, but investors were not certain that it would be lasting).  The creation of new infrastructure provided jobs, but these jobs lasted as long as the building takes. As far as I have understood (and it may be a gross simplification) it was only the war and production for the war effort that enabled sufficient amount of investment (both private and government) and development of up-dated factories and production methods that enabled the workforce to be brought into production.

      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

      by NY brit expat on Fri Dec 24, 2010 at 02:17:42 PM PST

      [ Parent ]

    •  It actually started gping off the rails (2+ / 0-)
      Recommended by:
      In her own Voice, NY brit expat

      in 1966. It has been getting worse in cycles since then.

  •  If this were general knowledge taught (1+ / 0-)
    Recommended by:
    NY brit expat

    directly to students in public high school in a language they could understand, how long could such a system last?

    Find your own voice--the personal is political.

    by In her own Voice on Fri Dec 24, 2010 at 01:48:01 PM PST

    •  that is a very good question and I honestly (1+ / 0-)
      Recommended by:
      In her own Voice

      think that is one of the reasons that they do not teach it. You wouldn't even learn a lot of this at university as many economists today do not know anything about economic history or history of economic thought. They only teach the simplified versions of the latest things until you reach graduate school. I've taught this exactly in undergraduate programs in the UK (of course with access to a whiteboard) and with student ability to ask questions and my responding when they have questions. If you can believe it, it is a rather simple explanation of Say's Law and its history in economic thought. Thanks for this "in her own voice"!

      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

      by NY brit expat on Fri Dec 24, 2010 at 01:58:30 PM PST

      [ Parent ]

      •  yes, the control of information, truth, by (1+ / 0-)
        Recommended by:
        NY brit expat

        the powers that be.

        It became known in part during the rise of the Unions to power, but not at the level of core truth.  What kind of transformation in values in human consciousness would be required to invent and activate an economy that would ensure social justice -- fairness and plenty for all?  One of humility, empathy, and compassion, I would guess...

        Find your own voice--the personal is political.

        by In her own Voice on Fri Dec 24, 2010 at 02:16:53 PM PST

        [ Parent ]

        •  I am actually going to do another (2+ / 0-)
          Recommended by:
          Richard Lyon, In her own Voice

          diary on the social welfare state and its impact on international solidarity; while the social welfare state certainly mitigated the worst aspects of the system for those in advanced capitalist countries (it didn't eliminate poverty completely and couldn't eliminate persistent unemployment which are by-products of the way in which the system works), but it certainly raised the incomes of even the poorest and created a social welfare net. These things were never extended to the 3rd world and developing capitalist economies.

          Things can change, but we need to take into account the needs of everyone and not solely the needs of this system.

          No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

          by NY brit expat on Fri Dec 24, 2010 at 02:30:20 PM PST

          [ Parent ]

          •  Wonderful!!! I look forward to that diary! (1+ / 0-)
            Recommended by:
            NY brit expat

            I was listening to someone speaking last week about the relative percentage of capitalism and socialism in a national (or global) economy being a good balance at, say 65% capitalism to 35% socialism -- or even 55 - 45.  Isn't that the way of Norway, Sweden, Finland -- the Scandinavian countries?

            Find your own voice--the personal is political.

            by In her own Voice on Fri Dec 24, 2010 at 03:11:41 PM PST

            [ Parent ]

            •  I am planning on doing it for the anti-capitalist (1+ / 0-)
              Recommended by:
              In her own Voice

              meet-up on January 2nd. I just need to add some more on neoliberalism or stop where I am ... so much of the social welfare state is being scaled back in europe. I'd have to check to see how much has been scaled back in Sweden and Norway, Finland still has a large public sector. then again, even scaled back, they are far better than the US and UK and income and wealth inequality is much narrower there.

              No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

              by NY brit expat on Fri Dec 24, 2010 at 04:24:46 PM PST

              [ Parent ]

              •  thanks, I will (1+ / 0-)
                Recommended by:
                NY brit expat

                sit in on the anti-capitalist gathering on the 2nd.  Look forward to it!

                Find your own voice--the personal is political.

                by In her own Voice on Fri Dec 24, 2010 at 04:46:05 PM PST

                [ Parent ]

                •  there are some great people that participate (1+ / 0-)
                  Recommended by:
                  In her own Voice

                  some are not anti-capitalist but like the discussions and appreciate the information. It is a nice group of people and I have learned a lot as contributors and participants have so many different interests and bases of knowledge.

                  No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

                  by NY brit expat on Fri Dec 24, 2010 at 05:02:14 PM PST

                  [ Parent ]

                  •  I have read Cassiodorus for a while (1+ / 0-)
                    Recommended by:
                    NY brit expat

                    now and always appreciate her broad knowledge and her perspective.  I've also kept up a little with goinsouth.  I don't do too much commenting there b/c even though the social sciences are my area of education, I am only becoming familiar with economics and political science in recent years.  

                    Find your own voice--the personal is political.

                    by In her own Voice on Fri Dec 24, 2010 at 05:25:55 PM PST

                    [ Parent ]

                    •  there are also historical discussions, some on (1+ / 0-)
                      Recommended by:
                      In her own Voice

                      culture. Talk to them, I am certain that they would be interested in alternative discussions of social work and therapy and would be interested. There was a discussion of the arts and culture that spun off a diary on JK Galbraith.

                      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

                      by NY brit expat on Fri Dec 24, 2010 at 06:22:22 PM PST

                      [ Parent ]

  •  Wow (1+ / 0-)
    Recommended by:
    NY brit expat

    You've outdone yourself, ny brit expat.

    I'll be coming back to this one to read it again.

    Happy holidays!

    •  Thanks joanneleon! Happy holidays (0+ / 0-)

      to you as well! My inspiration comes from the strangest places! :D

      No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable (Adam Smith, 1776, I, p. 96).

      by NY brit expat on Fri Dec 24, 2010 at 06:57:43 PM PST

      [ Parent ]

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