I’m still struggling with figuring out the economic crisis (for my research) and here is what I have to share.
In order for capitalism to function, it needs money to circulate. And it always needs more and more money to be spent on more and more goods because that’s the basic operating principle of capitalism: it needs more. Stagnation is death. Lack of mobility makes it explode.
Salaries have been stagnant in developed countries for about 30 years. This means consumers didn’t have more money to spend. But this didn’t lead to a collapse because there was a lot of credit. This was fake, imaginary money which didn’t lead to any real growth. And as we just discussed, capitalism can’t tolerate no growth. So the economy collapsed and we have an economic crisis.
Cutting expenditure is the commonly accepted way to battle this crisis but it’s a shitty way because, once again, capitalism hates the very idea of less spending.
The only practical solution is to get a lot of money back into circulation immediately. Another possibility is, of course, to forsake capitalism but since there are zero alternatives, let’s leave that shit to the especially air-headed among the Lefties.
So how do we get big money back into circulation? Governmental spending is out because that’s all borrowed money and we’ve already seen what it costs to pretend that fake money is real.
Pickety suggests extremely heavy taxation of the unused capital that’s lying around. I’m opposed to all taxation that is higher than 20% but it isn’t like anybody is suggesting any other alternative.
This is where I am right now. Let’s see if anybody else has any insights to contribute.
Clarissa's Blog 
I think you may be making a very basic error right here:
“Governmental spending is out because that’s all borrowed money and we’ve already seen what it costs to pretend that fake money is real.”
Government spending is in fact very different from bank loans.
All governments in fact do need to borrow some money to some degree, because only short term economic sustainability is possible otherwise. Japan has one of the highest govenment debt rates in the world, but this does not imply a bubble economy.
On the other hand, a bank loan often produces a bubble, because certain items are valued as more than they are actually worth. Interest rates rise, and that may be problematic.
Government spending by itself it different as it puts money into circulation, that is it puts it into the hands of consumers, who can then buy the varied and new products manufactured. This, in turn, supports the continuation of various industries and enables them to compound capital. With the capital they get, they can innovate and come up with newer and better product designs. But it all depends on the everyday person, the consumer, having money in their pockets to begin with.
Government spending may also facilitate the maintentance of existing industries by protecting the more vulnerable ones with tarrifs or by giving corporate subsidies. This assures that people can be employed by those companies locally, which means that those employees will also have more money in their pockets and can consume from other local companies.
So, in other words, from what I can gather, the running of a capitalist economy is a fine balancing game. You do need to take care of the poorest to make sure they can spend money to keep the whole thing going. That is the point of government spending. If the government stops intervening, the whole thing falls apart and cannot be sustainable in the long term. A dilligent government will borrow what it needs to, to sustain its economy. That is perfectly rational and relates to trying to support this balancing act. If the government stopped protecting the weaker people and industries, out of some purist notion, for instance the idea, “capitalism runs itself”, they will soon find out that an advanced economy cannot be sustained on the basis of a one-track idea.
It’s always, always, always a question of balance!
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In order to spend more money, a government has to take it from some place. Higher taxation is out, all that remains is borrowing from China. And that’s a very harsh and dangerous dependency.
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Right. Most advanced countries sell government bonds, sometimes to their own citizens or if need be to foreign nationals. That does not, however, create a bubble. A bubble economy is a different issue. That is when what is sold is overvalued.
But the US has already got itself in deep with China.
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It’s interesting that the wealth transfer dynamics of the wage system result in an 80/20 division, with the upper 10% owning/controlling 80% of the wealth the other 90% produce.
see: http://thenextrecession.files.wordpress.com/2013/10/global-wealth-report.pdf
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That’s capitalism. It’s been around for 200 years and there is no alternative. Let’s concentrate on what can be solved.
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http://www.theguardian.com/commentisfree/2014/may/26/are-we-witnessing-the-emergence-of-the-united-states-of-australia
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I know very little about economics, but if capitalism has only been around since approximately the industrial revolution, how did we survive before capitalism? I mean, is going back to a different (non-communist) system possible? Is there any other system besides capitalism that would be better?
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Capitalism and feminism are about the same age and, I’m convinced, are indissolubly linked. So I, for one, don’t want to go back. I have a pita about this but I can’t link right now.
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“I’m opposed to all taxation that is higher than 20%” Clarissa, the 20 percent cutoff seems arbitrary on its face. I’m sure you probably have a basis for the 20 percent, and I’d be interested to know what it is.
My own sense is that the hoarding of unused capital must be a big part of the problem. People and corporations who literally have more money than they know what to do with are to me an unexplainable, or at least unjustifiable, part of capitalism. I think a better operating capitalism wouldn’t have this hoarding problem. There’d be some inherent balance in supply and demand and money. (At this point I don’t know what I’m talking about.)
Long story short, I don’t see any better solution than redistribution of wealth. Not confiscatory redistribution, not redistribution aimed at making everyone equal. Just enough redistribution to augment government fiscal and monetary policy and keep the wheels turning. Taxation is one obvious way to redistribute. Another way might be higher minimum wage and livable wage laws. Or laws putting a ceiling on the earnings of CEOs, athletes, celebrities, and “winners” in any field to mitigate the “winner take all” effect. Land redistribution makes sense in a society where most of the wealth comes from farming or extraction of other natural resources. Alternatively, Alaska’s system of distributing to state citizens a portion of all the state’s income from oil drilling bears study.
A people could decide democratically that certain natural resources are not private property but are owned by all the people. This could include air, water, oil and natural gas, and everything mined from the ground.
It might even go so far as to include farmland, which produces food, and forrest land, which produces lumber. Nut that would seem to infringe a little too much on our traditional concept of private ownership, which is part of capitalism.
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Yes, it is arbitrary. To be honest, I find it extremely hard to see anything over 15% as fair, but I can kind of manage to convince myself that, in dire circumstances, it’s OK to require people to contribute 20% of their income towards maintaining society.
“My own sense is that the hoarding of unused capital must be a big part of the problem.”
– Of course, it is.
” People and corporations who literally have more money than they know what to do with are to me an unexplainable, or at least unjustifiable, part of capitalism.”
– But it’s their money. How would you feel if somebody decided you shouldn’t have your property and it will be put to better use feeding the starving people in the Congo?
“Or laws putting a ceiling on the earnings of CEOs, athletes, celebrities, and “winners” in any field to mitigate the “winner take all” effect.”
– I don’t understand this at all. If people got together and decided, of their own free will, to follow a sport, donate their money to that sport and accept the rules in that sport league, how is at anybody’s business to prevent these adults from engaging in this activity? It’s their money. I don’t know, I will never understand this kind of thinking. Tomorrow, the moral majority decides – once again – that it needs to use my body the way it feels benefits all, and where are we all going to be then?
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Of course, I’m also in favor of taxing inheritance to up to 90%. Or more. That would be fair because people who made the money aren’t deprived.
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There are several issues here. Looking just at income inequality, the US ranks 41st where 1st is the most unequal country (Lesotho) among 135 countries ranked in the CIA World Factbook. We don’t have an 80/20 distribution; its more like 95/5. That 5% doesn’t spend enough to keep the US economy afloat.
Not only do most people not have money to spend, the growing burdens of healthcare costs, housing and education are reducing spendable cash. Now consumers are using retirement funds to maintain their lifestyle, and also borrowing on credit cards. Those economic instruments represent the bubble in this economy. Either a rise in interest rates or collapse of Social Security would create a devastating crisis.
We have idle capital, but we also have hording of wealth in offshore tax havens (e.g., Ireland). Virtually every corporation with international operations has cash stashed in Ireland. That cash is not taxed by the US until it is brought into the US, a silly rule that Congress has no desire to fix.
In fact, it is Congress that is the root of most of our difficulties. Despite rhetoric, we have a reversal of historic party positions. The Democrats are advocating balanced budgets while the Republicans are advocating spending that benefits their corporate backers (including military spending that the military doesn’t want). Neither party represents “The “People.”
If The People actually paid attention and voted, we would have a very different situation than we have today. However, in a New York Times article, “American the Clueless” (May 2013), Frank Bruni reminded us that 65% of Americans cannot name any Supreme Court justice. Over 1/3 don’t know who the Vice President is. Most don’t know that Obamacare and the Affordable Care Act are the same thing.
So, how do you go about fixing stupid?
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“Not only do most people not have money to spend”
– My friend, have you been to a mall recently? Or to a car dealership? A jewelry store? They are teeming with customers. And that’s minus the online purchasing which we don’t see visually.
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Ah, the difference between hype and reality. Consumer credit card spending has been increasing. meaning most are spending money they can’t afford to spend. Car dealers are back into serious price discounts to move inventory, not something you see in a healthy market. (One dealer local to me is advertising selling cars at 1 cent over manufacturer invoice.) Internet spending has never exceeded roughly 10% of total retail sales in the US. You don’t see it visually in the US because it largely doesn’t exist.
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The key issue here is profit.
The reason that Microsoft, Apple, and Alphabet have accumulated these massive “hoards” of cash is that there is, especially, since 2008 a severe lack of profitable investment assets.
Investment is the mechanism through which wealth concentrations usually lose their worst societal effects – as they ultimately offer loans to businesses to get off the ground or to expand.
-> Taxation is not the only solution to get money out of “idle” pockets and put it to beneficial use.
So, why is there no profit?
This is where things get very complicated and opinions diverge even stronger.
However, I believe that stagnant incomes and credit card debt are certainly important factors.
( Full disclosure: It is conceivable that there are theoretically profitable investment opportunities in the real economy, but that investors are so bearish after 2008, that a general preference for holding cash or extreme minimization of risk is being preferred. Hence, the lack of investment would be more of a psychological/irrational phenomenon. )
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