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I know. It's all wrong. By rights we shouldn't even be here. But we are. It's like in the great stories, Mr. Frodo. The ones that really mattered. Full of darkness and danger, they were. And sometimes you didn't want to know the end. Because how could the end be happy? How could the world go back to the way it was when so much bad had happened? But in the end, it's only a passing thing, this shadow. Even darkness must pass. A new day will come. And when the sun shines it will shine out the clearer. Those were the stories that stayed with you. That meant something, even if you were too small to understand why. But I think, Mr. Frodo, I do understand. I know now. Folk in those stories had lots of chances of turning back, only they didn't.  They kept going. Because they were holding on to something.

Sam, The Lord of the Rings

The journey traveled by capitalist economies over the past three centuries has had many bumps, uncertainties and falls. After the Great Depression, we came to expect stability in our economy with smoother bumps, fewer uncertainties and no falls. However this is not the historic norm.  Indeed, as Paul Krugman notes, our ability to address economic upheavals were historically severely limited.

Cycles of boom and bust are inherent to capitalism.  Before the Great Depression, there was the Long Depression.  Before the Long Depression, there was the speculation real estate Panic of 1837 and so on.  Indeed, cycles of boom and bust are the norm much more so than stability.

For many people the economic disruption and devastation associated with the crash that began in 2007 have left us with a strong sense of being lost.  This ongoing sense of economic uncertainty and instability seems new.

Indeed, although the Great Recession has been declared over by technical measures of GDP, it is not over in terms of the continuing impact on the lives and fortunes of millions of people. In those terms, there is little sense that we have seen the middle, much less the beginning of the end. Some speak of this period as our version of Japan's Lost Decade. However, this is more accurately a return to the the truth of capitalism: It is an unstable system.

This is an introduction to a new series focusing on chronic economic problems. It is being jointly authored by Richard Lyon and Bruh1. We have conceived it in terms of the new group platform that will beavailable on DK4. Until that conversion takes place installments will be published as diaries under Bruh1's account.

ABSTRACT:

The U.S. and World economies will grow more unstable as time goes on due to the structural problem of capitalism being based on risk taking that leads to greater and greater levels of speculation.  Risk taking by individuals as a structural element of capitalism is often described as a strength by the dominant economic leadership in the West. Indeed, such positive terms are ascribed to it like "innovation."  The argument goes that risk taking leads to growth. Growth is supposedly infinite.

The hidden truth, despite discussions of winners and loser, is that many true believers believe that growth, and by extension, growth in demand will continue forever.  The core assumption is one that denies the existence of a finite world. It is this myth of continuous growth that the true believers use to justify the risk taking in our system and reliance on market mechanism as our ultimate cure all.  They do not create models based on a finite world despite claims of being focused on limited resources. The argument is always that these economic policies will raise the ship for all in the long run.

This understanding of the pie as infinite rather than finite leads to profound policy differences.  How one thinks of the economy is powerful, and, yet, we mostly take these assumptions, even here, for granted.  Indeed, we may not even realize just how much these economic ideas are assumptions rather than facts. Even some progressives tend to believe that the cycle will not end.


***************************************************

Before continuing, we want to make it clear that growth is not always a negative thing destructive to the environment. We could be investing in things as alternative energy, a smart grid, new transportation systems, etc. GDP would expand. New jobs would be created. The risks of climate change would be reduced. It is the drive for growth at any price that is not sustainable.  

*****************************************************

As a result, there is often very little consideration given to what this risk-taking will means in a macro sense as far as the long term stability of capitalism is concerned. We often don't consider risk until a crisis arises. The response to each crisis since the Great Depression has been to use incremental steps to put out the fires that result from the speculation.  This is because on some level policy makers have come to believe that growth is just around the corner. That this growth has no limits. In fact, right now, we are all waiting for the next miracle that will grow us out of our present situation. Even progressive policy makers assume some light at the end of the tunnel based on the current system remaining mostly the same. However, what if that long term assumption is wrong? What then?

Each cycle, in turn, reduces our ability to address the next crisis, and, each subsequent downturn and rebound increases the chances for prolonged disruptions that can take the form of either serious depression or serious inflation. These prolonged disruptions are the car heading over a cliff as far as economic, political and social stability are concerned. Rebounds create the illusion of stability or recovery but the long term systemic instability remains. In addition, the other aspect of how rebounds contribute to the problem are that the tools often  used to promote rebound can also increase instability of the system.

One should not imagine, however, that if one eliminates the tools used in rebounds that one would eliminate instability.

There are many canaries in the coal mine.  Canaries such as employment, housing and education provide us with insight into the ever increasing social chaos and economic instability.  Each cycle, in turn, reduces our ability to address the next crisis, and, each subsequent downturn increases the chances for prolonged depressions as were previously the norm.

The world, as we have come to understand it since the New Deal, of minor bumps, a few uncertainties and no falls is coming progressively to an end. This is the darkness and danger of our story.  Like Sam, we struggle to understand its nature and our place in it.  We seek to determine how we can get pass the darkness and danger in order to arrive into the light. We question whether it is likely.

To understand where we are, it is important to understand briefly the economic conditions as they existed prior to and after FDR's attempt ensure greater economic stability through the New Deal. We shall primarily focus on the U.S. in this introduction, but there are similar dynamics at play abroad in the economies of other countries.

The 19th century saw the rapid emergence of industrial capitalism in Western Europe and the United States. This development drastically transformed the social and economic structure of the nations at its forefront. Large segments of the population shifted from rural communities to urban industrial centers and others migrated across the Atlantic to the western hemisphere. A regularly recurring feature of this industrial world was business cycles that periodically went through times of boom to bust. The busts were usually termed panics, but they were what we now call recessions or occasionally depressions. Extended periods of stability and tranquility were seldom in evidence.

During the 19th century many European nations established central banks as a means  of dealing with financial instability. There was great political resistance to such a step in the US. The issue of giving greater powers to the bankers on the east coast was embroiled in the populist movements  in the South and Midwest. The panic of 1907 was a severe disruption. It generated enough political leverage to bring about the establishment of the Federal Reserve System in 1913.

However, the crisis that would lead to the rise of what is considered to be the norm of American society today began with the Great Depression.

The Great Depression of the 1930s was the most extreme and extensive of the crashes. It came at the end of a decade of conservative Republican government and economic policy.  The Roosevelt administration came into office with a strong political mandate that allowed them the freedom to experiment with some fundamental changes in policy. The first new deal which was a collection of emergency measures adopted during the first 100 days. Much of this was discarded either as a result of Supreme Court decisions or later repeal. However, a policy regime that is referred to as the second new deal has been an enduring feature of American political and economic institutional structure. It's major components were in place in time for the 1936 election. The most important provisions were:

The Wagner Act provided legal protections to labor unions in their activities.  

The Social Security Act established the Social Security program and public assistance programs such as Aid to Families with Dependent Children.

TheSecurities and Exchange Commission Act established regulation of the stock market.

The Glass-Steagal Act of 1933 established the FDIC and depositinsurance and separated commercial banks from investment banks.

The Agricultural Adjustment Act established and extensive system of agricultural price supports.

LINK

The programs and policies of the New Deal managed to put the lid back on American society and achieve some level of economic stability. However, it was the all out industrial effort of arms production during WWII that conclusively ended the Great Depression and its economic disruption.

The two decades of 1946-1966 were a period of generally tranquil prosperity for the US economy. Prices and employment remained relatively stable. Many Americans now look back to that period as a golden age that needs to be somehow recaptured. There were four mild and short recessions during this period. Americans enjoyed a standard of living well above that of any other nation. They came to believe that they had created a bullet proof economy.

At the height of the Vietnam war the US economy began to exhibit an increasing level of instability. The stagflation crisis of the 1970s brought periods of high accompanied by double digit inflation. This was a different pattern than historical recessions that tended in the direction of deflation but it was no less problematical. The presidency of Ronald Reagan saw the beginnings of a conservative movement which aimed to make basic changes in the institutional regime which had been dominant since the New Deal. Deregulation, lower tax rates and privatization were among their favorite rallying cries. This brief history forms the background of our diaries.

The recession which began in 1990 had a major political impact. One reason for this was because it created high unemployment among middle class Americans who were accustomed to viewing recessions as something that really didn't impact them. It was followed by the dot com bubble which burst creating another recession followed by the even bigger housing bubble which was then followed by the most severe and extensive recession since the great depression. So far, we have somehow managed to avoid another crash and general deflation of the same magnitude of the Great Depression, but it is pretty apparent that the US does not have a bullet proof, stable and tranquil economy.

Since WWII we have been conditioned to the notion that recessions are a natural, but mild feature of the economic landscape and that they always pass. The bubbles that have been generated in their wake give the impression that the good times are always just around the corner. The conventional wisdom of the prevailing establishment of economists is that free market economies are characterized by self correcting equilibrium and will naturally return to a state of full employment and stable prices if left to their own devices.

As the orthodoxy would have us believe, recessions and such disruptions are the result of external government interference in an economy that should be left to the management of the captains of corporate capitalism and their expert economic advisers.  

It is the basic thesis of this series that things really haven't worked out that way. America has economic problems that have been getting progressively worse for the past 30 years. And guess what folks, they are not going to get better by just leaving them alone.

Many people are under the impression that the new deal was inspired by the economic theories of John Maynard Keynes. That is not historically accurate. The New Deal programs were put together by a group of eclectic political thinkers from a variety of backgrounds. Most of the legislation was more influenced by humanitarian philosophy and political concerns than by any economic theory.  The second New Deal legislation was almost fully in place before Keynes published his most important work General Theory of Employment, Interest and Money.

During the 1940s, some of his ideas about the use of fiscal policy to intervene
during periods of economic stress became incorporated in the practices of economic management. Initially his theories posed a major challenge to the prevailing neoclassical economic establishment. Some of his work was grafted onto the macroeconomic perspective of neoclassical theory and something, which is now referred to as the neoclassical synthesis, emerged. However in the process much of Keynes most important work was shoved aside and the economists who have worked at full development of it are officially classified as among the heterodox.

Hyman P. Minsky was a post-Keynesian economist who addressed the problems of chronic instability in the American economy. His major work Stabilizing An Unstable Economy lays out his research and theoretical development. Minsky is the intellectual godfather for this series. His book is directed toward other economists and not the general reader. It is not for the faint of heart. However, this video made by Randall Wray who is one of the major contemporary scholars of Minsky's work is an easily digestible introduction to the subject:

Minsky's book was published in 1986. The changes promoted by the Reagan administration, or Neoliberalism, were just being developed. Minsky's main focus was on the stagflation crisis that was beginning to subside and the historical developments from the Great Depression. Much of his work is linked directly to the theories of Keynes. There are several main points of his position that have informed the views that will be developed in this series.

The most important is that advanced capitalist economies are inherently unstable. The primary sources of that instability arise from within the economy and its financial activities. The New Deal did not provide an institutional structure that was highly effective in controlling this instability and certainly not one that could function indefinitely without modifications to adjust to changes in the real world. The tranquil period from 1946-1966 was an historical anomaly. It had more to do with the economic impact of WWII production than with New Deal policy.

The free market mechanism of neoclassical theory is an effective mechanism for the management of specific decentralized markets, but it discards realities that cannot be ignored in understanding and stabilizing the macroeconomic environment and setting policy.

The activity of financing production is the core source of instability. The financial innovations of bankers and other financial service promoters create new sources of economic instability. The strong tendency of government institutions to bailout the catastrophes that result from the increasing level of risk associated with those innovations validates and reinforces the behavior and leads to new destabilizing innovations as soon as the crisis is past.

This series will apply Minsky's ideas to the present US economy we face in 2010 by looking at how the notion of chronic instability explains developments in several major economic areas.

Diaries coming soon include:

Employment

Housing

Education

Banking and finance

Personal Debt

Government debt

And More

Separately, Bruh1 has developed a series on race and Neoliberalism called "Oprah, Race and Neoliberalism" that he will debut tomorrow at 2PM.

Originally posted to bruh1 on Sun Jan 09, 2011 at 11:26 AM PST.

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Comment Preferences

  •  I enjoyed reading. One begging question: (6+ / 0-)

    Do exotic securities packages, contrived options and investments, and the host of other non-capital products out there, really constitute "Capitalism" as conceived by the economic philosophers?

    Get better, Gabrielle! Third Way =) Donk is a poker term for someone who is really bad at "the game". Still, a poor choice in name I guess.

    by DonkSlayer on Sun Jan 09, 2011 at 11:31:04 AM PST

    •  It's private property. (6+ / 0-)

      These are the sort of speculative investment activities that contribute to the instability of advanced capitalist economies. However,just because their contributions to general social good is questionable, that doesn't make them any less capitalistic.

    •  That's actually a very good question (8+ / 0-)

      in that you seem to be asking whether the present free market types really represent the way these ideas were originally conceived?

      For example, what did Adam Smith really mean by "invisible hand" of the market?"

      Did he mean what free market fundamentalist mean by it?

      The answer seems to be "no."

      http://delong.typepad.com/...

      •  It raises a question (7+ / 0-)

        of whether government regulation is required to maintain a level playing field for free markets. The political libertarianism that has gotten linked to neoliberalism is pulling us back to the days of the robber barons. This is not a new quandary for capitalism.

        •  It's all well and good to analyze (0+ / 0-)

          the quandaries of capitalism.

          Since it is the system we have, I am wondering do you have suggestions for an alternative.

          If so how would you plan to layer it over what we have now. Or would you suggest just upending the current system in favor of........ what exactly?

          ~a little change goes a long way~

          by missliberties on Sun Jan 09, 2011 at 12:05:55 PM PST

          [ Parent ]

          •  My point being (0+ / 0-)

            that discovering all the failures and flaws without suggesting a replacement system and options for alternatives and actions that actually work....... leads to an over riding sense of helplessness and frustration.

            In certain situations that can lead to unhealthy actions.

            We need to respect our civil institutions and they also need to be respectable.

            ~a little change goes a long way~

            by missliberties on Sun Jan 09, 2011 at 12:09:42 PM PST

            [ Parent ]

            •  An over riding sense of frustration (2+ / 0-)
              Recommended by:
              bruh1, Richard Lyon

              and helplessness is totally preferable to the false sense of complacency that people are lulled with.

              Recommending an alternative?  That is hardly the job of those writing the article, but if they choose to do so, it is commendable.  No, merely the act of causing a few people to question the assumptions of the prevailing mythology that "Capitalism Works" is a difficult enough task.  Difficult, but essential.

              WikiLeaks and Net Neutrality; our last, best hopes.

              by chipmo on Mon Jan 10, 2011 at 10:26:34 AM PST

              [ Parent ]

          •  We will be following the work (4+ / 0-)
            Recommended by:
            conchita, bruh1, ArthurPoet, NY brit expat

            of Minsky. His position is that capitalism can be considerably improved by appropriate regulatory and policy changes.  

      •  What did Smith think about wages? (2+ / 0-)
        Recommended by:
        NoMoreLies, NY brit expat

        From a piece I wrote a while back titled "the war on an economy in crisis":

        First we have to start kicking back at the free marketeers and their continually regurgitating crap they either don't understand OR refuse to admit the reality of.

        An excerpt from a piece I wrote in June:

        Right Wing Revisionist Capitalism

        ...snip...

        I'll note that right now the uber rich pay as low as a very arbitrary and paltry 15% of their money in taxes compared to the the 25 to 28% that a teacher, fireman, police officer or doctor will typically pay.

        And given that Smith was also an advocate for high wages for the poor:

        The bicentennial anniversary of the publication of The Wealth of Nations was celebrated in 1976, resulting in increased interest for The Theory of Moral Sentiments and his other works throughout academia. After 1976, Smith was more likely to be represented as the author of both The Wealth of Nations and The Theory of Moral Sentiments, and thereby as the founder of a moral philosophy and the science of economics. His homo economicus or "economic man" was also more often represented as a moral person. Additionally, his opposition to slavery, colonialism, and empire was emphasized, as were his statements about high wages for the poor, and his views that a common street porter was not intellectually inferior to a philosopher.

        Do you think it is safe to assume that he believed not in a minimum wage as much as a living wage? I do. The man obviously believed in free markets to a degree, but he was as socially liberal as I am on too many issues.

        In that first quote at the top of this post was a ranting and raving liberal Adam Smith clearly talking about living wages that is worth repeating:

        "Servants, labourers, and workmen of different kinds make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged."

        Because free market Capitalism needs to be balanced by the morality of taking care of others.

        There are just way too many cracks for people to slip through if you had an unbridled free market without government intervention in many areas.

        ...snip...

        The next time someone throws more free market whackjobery at you tell them that Adam Smith, the guy who's theories all of them are quoting, was an advocate for LIVING WAGES, and for social safety nets too, simply because a free market does not have the morals to take care of the people that would get chewed up by an unbridled free market.

        Do you ever hear the right wing talking about Smith's position on wages or social safety nets? Not a chance. Because he was realistically liberal in his thoughts on that.

        The reality is that Adam Smith did not wear an "Adam Smith Necktie" and the right wing revisionists, the extremist libertarian free marketeers, would prefer you not notice that fact.

        ePluribus Media
        Collaboration is contagious!

        by m16eib on Sun Jan 09, 2011 at 01:23:30 PM PST

        [ Parent ]

      •  I really love the questions and issues (2+ / 0-)
        Recommended by:
        Richard Lyon, Miep

        this diary is raising, and I look forward to good substantive discussions coming out of this entire series. Thank you for all your work on this. We will all benefit.

        ~we study the old to understand the new~from one thing know ten thousand~to see things truly one must see what is in the light and what lies hidden in shadow~

        by ArthurPoet on Sun Jan 09, 2011 at 05:30:29 PM PST

        [ Parent ]

    •  Even before the consolidation of the capitalist (5+ / 0-)

      system, the financial sector produced panics, et al, thinking of Tulips here. The additional problem here is that the financial markets serve a dual purpose: one being the short-term speculation and the other being a source of money for further investment. When the short-term speculative motive becomes completely predominant to the detriment of investment and the value of assets has little linkage to economic indicators such as GDP, we have problems.

      Smith's discussion of the invisible hand had little or nothing to do with financial markets, it related to the question of the match between what is being produced and sold, the circular nature of the production process and the fact that while capitalism appears very anarchic on its surface, there are definite regulating principles in operation, specifically the importance of the notion of competition and the mobility of capital seeking the highest level of profitability.

      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 Sun Jan 09, 2011 at 12:02:47 PM PST

      [ Parent ]

    •  The "products" you mention (0+ / 0-)

      are the end result of the comingling of higher mathematics and capitalism, the algebra of capitalism.  They have proven that money is all that is required to make a market, not a product.

      WikiLeaks and Net Neutrality; our last, best hopes.

      by chipmo on Mon Jan 10, 2011 at 10:28:38 AM PST

      [ Parent ]

  •  Tipped and rec'd. (6+ / 0-)

    Only Nixon could go to China; only Obama could dismantle Social Security.

    by Mehitabel9 on Sun Jan 09, 2011 at 11:34:19 AM PST

  •  Looking forward to this (6+ / 0-)

    collaboration and series. I will back to read this diary when I have time to give it proper consideration. I guess I better spend some time at DK4 and learn to navigate it and find gems like this. thanks your both good reads and I look forward to this series about a topic which seems to me to be at the heart of our current political malaise not to mention 'the world as we find it'.

  •  Wanted to thank you for an excellent (4+ / 0-)
    Recommended by:
    conchita, m16eib, caul, Richard Lyon

    diary, and I am looking forward to further diaries from this excellent collaboration.

    I wanted to ask a question, it is implied in the diary that the unstable nature of the system is primarily due to the financial sector; capitalism normally has trade and business cycles and other forms of economic crisis. The instability of the system certainly goes beyond the financial sector and even with substantial regulation (although they have not instituted financial transaction taxes whose purpose is to dilute the speculative motive) of that sector crises and cyclical movements are normal within the system.

    One other point, although the New Deal itself was derived from the combination of the inputs of many eclectic thinkers; the continuation of the social welfare state in the US was due to the concerted theories and policies of the economists from the neoclassical synthesis; perhaps that is one reason that it never went as far as it did in Europe in terms of nationalisations of certain sectors and bankrupt industries.

    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 Sun Jan 09, 2011 at 11:53:16 AM PST

    •  The focus of the financial system (3+ / 0-)
      Recommended by:
      conchita, m16eib, NY brit expat

      was what we got out of Minsky. I certainly do not claim to have fully understood everything he has to say. It is pretty clear that the new attention his reputation has been enjoying in the present crisis is focused almost exclusively on his investment collapse in time of financial stress thesis. What I understand Minsky to be saying is that it is financial speculation which tends to exacerbate the fundamental cyclical nature of capitalist systems.

      Minsky goes into great detail about the promises in Keynes' work were denatured by economist like Alvin Hansen. I would say that another difference between the US and Europe would be the abundant post-war prosperity that the US was enjoying. There didn't seem much need for basic restructuring at the time that Europe was rebuilding its systems.  

      •  I agree that the financial system is incredibly (4+ / 0-)
        Recommended by:
        conchita, m16eib, caul, Richard Lyon

        important and has a strong role in terms of the instability of the system, but the system itself is unstable and normally produces cycles for many reasons. Certainly financial speculation makes an inherently unstable system even more unstable and increases the likelihood of precipitating a crisis.

        But increasing income and wealth inequality could also have a precipitating influence due to their impact on realisation as well as the normal political reaction caused by gross inequalities.

        The US was also able to start earlier on the crisis as Europe was plunged into war and essentially destroyed; much of the earlier discussions on restructuring in the UK were held up by the war and were immediately put into place once Churchill was replaced as PM ... that is why they were able to move so quickly creating the social welfare state in the UK, the plans were in the works and they moved rapidly. In the UK, rebuilding was needed less immediately as compared to the mainland.

        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 Sun Jan 09, 2011 at 12:10:09 PM PST

        [ Parent ]

        •  The new dealers (3+ / 0-)
          Recommended by:
          conchita, m16eib, NY brit expat

          were aghast at the Fabian socialism of the Atlee government.

        •  I agree. (0+ / 0-)

          Speculation is important, but income inequality, wage stickiness, monetary policy mismanagement, fiscal policy mismanagement....  These things matter too, probably more.  Often financial speculation is a syptom of these deeper sickness, in my opinion.  Too much cheap money (either from trade imbalances or the fed ""printing" too much, income inequality creating vast reserves of wealth that can't be spent and therefore need to be invested create a speculative bubble, and then when it pops wage stickiness create mass unemployment and deflationary pressure.  Speculation is an intermediate step.

  •  Tipped and rec'd... I'm only (5+ / 0-)

    saddened that this critical diary has engendered so little attention.  I would argue that the understanding and increased clarity of economics would add stability to the overall social structure and health of America, so this series can only help that.  If the unfair distribution of wealth is at the heart of socio-political discord, as I believe it is, this series would definitely be a step in the right correct direction.

    Kick apart the structures - Seth

    by ceebee7 on Sun Jan 09, 2011 at 12:14:29 PM PST

    •  It is unfortunatrely, all too typical (0+ / 0-)

      of any discussion of this topic. People just don't want to know.

      Talk to any current advocates of "trickle down", laissez faire, or "free market" economics and you will find they fall into two categories; One, those that have some knowledge and earn their living from continuing the current system of plunder, and two, those that know nothing about economics in general or Adam Smith's theories specifically. They have not even read "The Wealth of Nations" let alone analyzed the theory he put forth. They are simply uninterested as well as ill-equipped to understand it. They just repeat what they've been told for over a generation.

      Simply realizing that he developed his ideas during the euphoric age of the enlightenment serves to provide great understanding of the things he was talking about. Not unlike what we see today, he envisioned a new beginning, a reform of the old, unjust, inefficient, and terrible ways of structuring society through a neutral, self-correcting system. An idea that is anathema to the parasites that hold power.

      Eleanor Roosevelt put it best; "Great minds discuss ideas; Average minds discuss events; Small minds discuss people."

      "Those who can make you believe absurdities can make you commit atrocities." - Voltaire

      by Greyhound on Sun Jan 09, 2011 at 10:12:02 PM PST

      [ Parent ]

  •  Great inaugural diary for what looks to be (3+ / 0-)
    Recommended by:
    m16eib, Richard Lyon, NY brit expat

    an important series at dk.  Economics is the only college class that left me in the dust and I have had to do a lot of reading later in life to make up for it.  This diary is now bookmarked as a resource and I thank you both for the time and thought that has gone into writing it. Going back now for a second reading.

    It is certainly wiser to prepare oneself for awakening than to live in denial and try to remain asleep. Sat Nam, Guru Rattana

    by conchita on Sun Jan 09, 2011 at 12:34:25 PM PST

  •  I'd hate for this to (4+ / 0-)

    get lost in crazyness of stuff coming out in the last couple of days. Unfortunately it probably will.

    Tipped and rec'ed if and I'll be following this series. Thanks.

    ePluribus Media
    Collaboration is contagious!

    by m16eib on Sun Jan 09, 2011 at 12:53:46 PM PST

  •  Unstable? Capitalism, as practiced in the U.S. to (5+ / 0-)

    is worse than unstable. It is unsustainable, a zero-sum system. We have already seen what happens when our banking system creates more debt than there are resources in existence to cover that debt. Our government has propped the banks, and American capitalism, up, but at the expense of the American people. Your tax dollars and mine have been spent to send jobs overseas. It was OK when it was just production, bricks and mortar...the middle class remained silent while the working class bled. Now it is customer service and middle management that is being off-shored, and the working class is still footing the bill, but now the middle class is feeling some discomfort, losing their McMansions and second homes. Eventually, there will not be enough raw materials to convert into marketable anything, nothing produced in the U.S., and we will have been reduced to consumers of credit. Ultimately, the only thing that will be produced here will be debt, and low-quality debt at that. The only thing that sustains us now is war.

  •  Some thoughts: (3+ / 0-)
    Recommended by:
    NoMoreLies, Greyhound, NY brit expat

    Risk taking by individuals as a structural element of capitalism is often described as a strength by the dominant economic leadership in the West.

    Of course, these are the same people who praised our Federal government for bailing out the investor class and the banks with $12.8 trillion in guarantees.

    Before continuing, we want to make it clear that growth is not always a negative thing destructive to the environment.

    That's a clever way of putting it.  Of course, it is true that the growth of some sectors of the economy (organic farming, perhaps) will not further impact ecosystems.  However, if an increase in economic circulation is to grow the overall economy, and not merely those sectors of it which take an active interest in minimizing the public's ecological footprints, then it will grow that present-day preponderance of economic activity that is malignant, that (in short) preserves and expands the status quo as it drives species to extinction, warps climate through atmospheric carbon dioxide increases, consumes resources at an unsustainable rate, urbanizes wilderness, destroys soil fertility through capitalist agriculture, and so on.

    We could be investing in things as alternative energy, a smart grid, new transportation systems, etc. GDP would expand. New jobs would be created. The risks of climate change would be reduced.

    But alternative energy will not reduce the risks of climate change one iota if it forms a mere supplement to the normal business of the present-day world economic system, which is to burn 85 million bbls./day of crude oil and a more-or-less equal carbon equivalent in coal.  To reduce the risks of climate change, you must instigate the rapid economic SHRINKAGE in that sector of the economy which is responsible for climate change, and remove fossil fuels from commodity circulation.  You must, in short diverge from the capitalist path.  I hope my recent diary on climate change can instigate innovative thinking in this regard.

    In fact, right now, we are all waiting for the next miracle that will grow us out of our present situation.

    And we must wait for this miracle because, clearly, neither Obama nor the G-20 believes in applying a stimulus which would boost the spending proclivities of the working class (and to a certain extent here I am suggesting that the working class be restored to solvency after a period of extended indebtedness) sufficient to restore growth.  Why do you think this is so?  Are they protecting the value of a set of investments?  Do they benefit from the depressed wages which accompany a large reserve army of unemployed people?

    The tranquil period from 1946-1966 was an historical anomaly. It had more to do with the economic impact of WWII production than with New Deal policy.

    To wit: the crisis of overproduction, was a partial cause of the downturn of 1929-1932.  If the public can no longer generate the funds to buy what's produced in the factories, then sales will fall, businesses will die, and economies will contract.  At some point an economic stimulus was necessary, and it had to be of sufficient order to create a consumer class, a class which was fundamentally hooked on the purchase of products and which earned enough money to sustain the addiction.  The "tranquil period from 1946-1966" (and onward into the Seventies) occurred at that point in the history of the capitalist system in which the rulers of the advanced nations (and their friends in the owning class) could see the necessity of consciously building a consumer class, rather than just "letting it happen naturally" (as it did in the 1920s) and then liquidating said class when the money was withdrawn.

    And so I gather your task for this series is to riddle us this: what now?  Can the government be coerced into building another consumer class, or should we do something else?

    "All we have to decide is what to do with the time that is given us" -- Gandalf, in Tolkien's "Lord of the Rings"...

    by Cassiodorus on Sun Jan 09, 2011 at 02:58:09 PM PST

    •  What I was talking in terms of (4+ / 0-)

      is systems and energy sources that replace the use of fossil fuels. Our basic position is that growth as we have always known it is destructive and it is not an indefinite solution to economic ills. We are introducing the notion that other approaches are at least possible, if unfortunately, not likely.

    •  1946-1966 coincidentally (1+ / 0-)
      Recommended by:
      Richard Lyon

      was a period when there were a lot of (nonworking) children and (nonworking) women who could consume all the excess production.  I doubt that the "rulers" ever understood anything.

      There has been excess production since about 1830 (or so I've read) but it took a century and a half for it to become a crisis.

      The problem with expecting the next technical wonder to save us is that that wonder will be artificial intelligence.  The most important applications of AI will be in the military and police forces.

  •  Excellent diary. (1+ / 0-)
    Recommended by:
    bnasley

    Simply excellent. I am gonna spend some time rereading this over the next day or two.

    ~we study the old to understand the new~from one thing know ten thousand~to see things truly one must see what is in the light and what lies hidden in shadow~

    by ArthurPoet on Sun Jan 09, 2011 at 05:27:31 PM PST

  •  Thank you for the diary (1+ / 0-)
    Recommended by:
    BentLiberal

    my toddler grandson is wreaking havoc in my apartment right now. But I will be back.

    This above all: to thine own self be true...-WS

    by Agathena on Sun Jan 09, 2011 at 06:14:44 PM PST

  •  thanks; subscribed, bookmarked (2+ / 0-)
    Recommended by:
    triv33, BentLiberal

    I think this kind of comprehensive historical approach is really needed. Good on both of you for taking it on. Richard, you write very well (I assume you wrote this piece).

    "One should always be a little improbable." - Oscar Wilde

    by Miep on Sun Jan 09, 2011 at 08:42:59 PM PST

  •  What worries me the most (2+ / 0-)
    Recommended by:
    bruh1, NoMoreLies

    is that this sort of discussion is not happening among politicians who might be in a position to do something about it.  I just hope we don't have to go through a catastrophe as bad or worse than the Great Depression before thinking about economics at a more basic level is allowed in political discussion.

    We might not be as lucky as we were in the 1930s.  We were fortunate enough to get Roosevelt.  Germany was not so lucky.

    Because of resource constraints in a world with too many people, it will be harder to get the kind of economic growth that was possible from the 1940s to the 1960s in the US.

    Advances in technology have helped in the past, but I do not think we can count on such help in the near future.  The most likely revolutionary advance will be artificial intelligence, but that might have the effect of making the labor of the average person worth very little.  Our society is presently totally incapable of handling such a situation.

    "The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt." Bertrand Russell

    by Thutmose V on Sun Jan 09, 2011 at 08:47:41 PM PST

    •  Globally speaking (0+ / 0-)

      we are going through a crisis much worse than the Great Depression, in that we are using the same basic assumptions of infinite growth and the ability to return to a former prosperity.  The same markets are in place, and in all honesty the same corporations and banks are in place.  Yet we now have a world with 70 more years of population growth, waste production, and water pollution.  We have a world with a warmer climate and a higher level of desertification.

      Centuries ago, we as a society jumped from a high point without a parachute and for the past 200 years have been listening to economists tell us we were flying.  We need to stop trying to invent wings and start bracing for the impact.

      WikiLeaks and Net Neutrality; our last, best hopes.

      by chipmo on Mon Jan 10, 2011 at 10:50:01 AM PST

      [ Parent ]

  •  This makes a lot of sense (0+ / 0-)

    Demand Filibuster Reform call your Senators at (202) 224-3121 -AND KEEP CALLING

    by Lefty Coaster on Sun Jan 09, 2011 at 09:32:49 PM PST

  •  bruh1 -- look deeper (0+ / 0-)

    Unplanned Capitalism is a disaster. Think about it from the 50,000 ft. view. You have people wanting to work and needing to consume and there are few jobs in the world's richest economy. Does this make any sense at all? Top that with no long term planning, irrational income distribution, massive speculation, and regular collapses and you have a disaster. Unplanned Capitalism in the long run is dead. Future generations, if they exist, will not, and should not, put up with this. I am an engineer and if I designed any system like this I would hide my head in shame and become a hermit for the rest of my life.

    What do we replace it with? That's the challenge. The fact that other systems have failed indicates that no one yet has had the understanding necessary to design a new economic system. We should start by enumerating goals.

    1. A high standard of living for all citizens.
    1. Solid long term planning for resource use and externalities, e.g. global warming
    1. Decent paying jobs for all citizens, the right to work.
    1. Stability.
    1. The right to opportunity. Venture capital allocated by merit.
    1. Control of speculation. Much of the wealth in the US is from direct speculation. This is criminal, no work lots of wealth. It's an insult to everyone who puts in an honest day's work for reasonable pay.
    1. Freedom of choice. Decide what you do, where you work, leisure time vs. more income, etc.
    1. The right to education.
  •  Perfectly Straightforward & Intuitively Obvious (0+ / 0-)

    Capitalism is inherently unstable because its endgame result is monopoly, by definition.  Once monopoly is established, capitalism can become only parasitical, destroying the society in which it is established.  The iron laws of microeconomics will always dictate that the monopoly capitalists spend the least on development, charge the most for prices and use their monopoly position to crush any nascent competition.  The monopoly capitalists will do just fine.  Everyone else will suffer.  Only some event from outside the system will be able to disturb the trend, like a war initiated by someone else or possibly revolution in the society involved.  This is built into the DNA of capitalism and is ignored at its own peril.  Sometimes sub-optimization is the wiser choice.

    "Love the Truth, defend the Truth, speak the Truth, and hear the Truth" - Jan Hus, d.1415 CE

    by PrahaPartizan on Mon Jan 10, 2011 at 06:59:27 AM PST

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