Friday, August 26, 2011

Are the political classes committed to recession?

It's the political economy, stupid

"there is no available mechanism to oust a political-economic elite whose interests have become incompatible with ours...the accretion of power by the rentiers has been systematic. It is...due to the transformation of corporations into tradable, recombinant portfolios of assets, increasing concentration of and returns to ownership. Those..at the pinnacle of wealth...no longer think about production (or) the ultimate consumers; they take financial positions and demand policies that will see to it that these positions are profitable.The global restoration of profits post-2008 was not an accident...many of the profits, particularly in the financial sector...will later be found to be illusory. The institutions will be decimated, but those who owned, lent to or bet on them will be rich."

Posted by icarus @ 11:39 AM (1269 views)
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19 thoughts on “Are the political classes committed to recession?

  • It’s a bit breathless in tone but the point is sound. Too many other commentators have reached a similar conclusion, and we have the evidence of our own eyes (pockets). As for democracy these days, the worst off do not bother to vote; many of the rest reason in tabloid terms, and the tabloid speak for the economic elite (appropriately disguised).

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  • “Are the political classes committed to recession?”

    I very much doubt it. The political classes (if such a thing exists outside the pages of text books) disagree with one another by definition, so there can be no coherent aspiration ascribed to them. For example, the US TEA party and the UK Labour party disagree on almost everything but neither of them are likely to want a recession. I’m pretty sure that the UK Cons and the US Dems don’t want a recession either

    “Those..at the pinnacle of wealth…no longer think about production (or) the ultimate consumers; they take financial positions and demand policies that will see to it that these positions are profitable”

    I often wonder if the people who write these sort of dark theoretical articles have ever worked in commerce or industry? Most corporations and their top executives have product departments who create new products and marketing departments who work out how to sell them to consumers. Their working day is devoted to this sort of mundane activity and they would be flabbergasted by the suggestion made in the above quote. Is the author suggesting that that the main board of 3M are no longer interested in producing industrial epoxies? Does he think that the new fizzy drink on the drawing board of Coca Cola is just a front? I’m absolutely sure there are rotters who think and act in the way suggested by the author but they are undoubtedly in the minority.

    I have noticed a recent tendency for people to assume that there is some sort of conspiracy behind austerity measures. The truth is less exotic but it’s quite obvious to me that austerity measures have been enacted because of the (perhaps simplistic) perception that we previously borrowed and spent too much. In a way, the austerity politicians are displaying an admirably common sense approach, where they refuse to attempt a fix using the seductive alchemy of economists and central bankers. Personally I believe that they should use a bit of alchemy, while cutting back a little less than they are doing but that doesn’t make me think that any politician who disagrees is conspiring to enrich the elite, or some such

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  • Hello Flashy,

    The article is short and there’s no room for him to expand his points, but I’m sure you’re aware of the arguments he would use to back up what he’s saying. You quote his

    “Those..at the pinnacle of wealth…no longer think about production (or) the ultimate consumers; they take financial positions and demand policies that will see to it that these positions are profitable”

    Before we get to this one let’s look at an IMF report which is germane to your debt and austerity point. It pointed out that offshore tax havens fed the debt engine by making it more profitable for companies to borrow than to raise equity, a practice that is ‘pervasive, often large and (impacts) on financial stability’. In this and other ways (not least the bank bailouts) the debt machine has substantial private as well as government origins. (As for the resulting austerity itself you are well aware of the argument that it’s self-defeating – e.g. southern European economies shrinking and unble to continue buying German goods, leading to stagnation in Germany – and can be seen as a means of supporting banks by supporting the sovereign debt they hold.)

    The above-mentioned debt-loading of companies leads us to the above quote. Shaxson’s ‘Treasure Islands’ points out that private equity’s leveraged buyouts, for example, have only a tangential interest in production/consumption since they are aimed instead at loading up the target company with debt, cutting the tax bill (profits offshore, borrowing offshore but borrowing costs shown as onshore), temporarily raising profits thereby (often by laying off workers too, including those who work in product departments) and shifting wealth from taxpayers to managers and shareholders. Big companies often use the financial muscle that they gain from offshore tax advantages to absorb smaller, innovative companies, ‘unlocking value’ by creating ‘synergies’ – but often it’s just a matter of gaining offshore tax advantages that the smaller company couldn’t have obtained by itself, or neutering the competition. (Then there’s asset-stripping, offshoring of jobs, cutting investment in workers, undermining unions etc.)

    We could go on in this vein all day. My point here is merely to chuck in the sort of points the author would probably have made in a full-scale essay.

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  • hello icarus: Everything you describe above goes on. My point is that this sort of activity is not all pervasive and that it does not contitute the buk of activity. If these articles want to be taken more seriously, they should at least acknowledge the existence of genuine business activity and production

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  • One does not need to invoke conspiracy or deny the useful production that occurs to accept the basic premise of the piece. The concentration of wealth, and the policies that support and encourage this concentration, in the name of economic growth are pretty clear. Economies that continue to increase this concentration do not serve the general populace, even while a large slice tacitly supports the policies. The recent riots are an acute example: the widespread view is along the string em up lines, rather than to question how our society has reached a point where this can happen apparently spontaneously.

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  • There are too many people invoking the riots as proof of their premise. Most of them must therefore be wrong. Statistically speaking, hardly any people rioted and the few of them who did, claimed a wide variety of reasons for their actions.

    The fact is that most people are not dissatisfied enough to riot and the bulk of corporations do uncontroversial business

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  • flashy – you’re doing it again – concentrating on the less important part of letthemfall’s post and ignoring the valid points he makes in the first two-and-a-half lines. You do have to ask in which direction things are moving, and wealth concentration in the midst of economic slowdown is a big clue.

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  • icarus: The last part of that post was offered as some sort of proof of the premise outlined in the first two and a half lines (no offense intended letthemfall). I picked on the last half to illustrate a contention of mine that the proof of these types of premise is nearly always absent or lacking. I do not dispute that wealth is concentrating in this recession but I do dispute the implied notion that something unusually sinister and coordinated is causing this trend.

    Historically speaking, wealth becomes more concentrated in a recession and the process tends to reverse in a boom (developed economies usually have a better distribution of wealth, so when a developed economy sinks into a serious recession, it effectively becomes a temporarily less developed economy). This article infers that there is some sort of coordinated plot to exacerbate this natural but unfortunate tendency. I dispute the existence of a coordinated plot and will continue to point out that these articles only ever offer rather unreliable ‘circumstantial’ evidence. The desire of corporations or wealthy individuals to make as much money as possible is a historical constant and it does not therefore, in itself, constitute proof of a plot unique to our time.

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  • Flashman,

    The Concatenation of change isn’t borne on old othordoxy. It’s made by the desire for new, when the existant has clearly had it’s day – because too many are excluded from it. You may find it hard to believe that your long held truisms are set to be challenged – but I’m sure you’ll survive. Many things are yet to happen. Do you still believe in democracy?

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  • flash – the current concentration of wealth is hitting new highs, and this recession is a particularly long one. And where’s the conspiracy theory? He writes “But the ability to see it at a system level presupposes either a system-level organization of the (wealthy rentier) class or the existence of individual interests that are transparently systemic. Neither appears to be the case today”. He sees only a series of small conspiracies – “make sure my bonds are serviced, my counterparties pony up, the markets I invest in stay liquid” – just lots of self-interested lobbying. Or, in the famous words of the mortgage securitisation bundler it’s as small and selfish as “let’s hope we’re all rich and retired before the sh1t hits the fan”. I suppose one could see the World Bank and IMF as organisations that impose austerity to protect bondholders from default and allow privatisers to enclose the commons – dunno if that counts as a conspiracy since it’s not particularly a secret. Were the US bank bailouts (“ex”-bankers advising a bought President to dish out trillions to banks to ‘save’ the financial system with no discussion as to which banks were ‘systemic’) a conspiracy? It’s getting too easy to accuse someone who looks at the bigger picture of being a conspracy theorist.

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  • The cause of riots is not simply a matter of one issue. I mention it as a singular example of a fundamental problem with our society, though it may be possible to argue that riots could happen in more equal societies (I can’t offhand think of an example of one). One fundamental problem with our society is inequality, and this is not a matter of the recession: inequality in incomes has been growing since the 1970s. I wouldn’t say that this is a plot as such, more an intrinsic feature of the political and economic system as it has developed these last 30 years. The culpability of politicians is not their fiendish plots but their contentment to allow and indeed tacitly encourage the concentration of wealth.

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  • dill: I read your post three times and I can’t see how it relates or responds to any of the points made in the preceding 8 posts? Most of the sentences in your post don’t even seem to relate to the other parts of your post, so I’m at a bit of a loss.

    Many things are yet to happen? That has to be the greatest truism of them all but do you have anything specific in mind and what have they got to do with this thread?

    I’ll survive? Glad to hear it but what do you think I’ll survive and why me? Who wont survive whatever it is you have in mind?

    Do I still believe in democracy? Yes but what’s that got to do with the price of eggs? I will however say that it’s a comfort to me that the vast majority in this country don’t want any sort of revolutionary change. On the off chance that you do want a revolution, are you aware that you are in a tiny minority and that it would therefore be undemocratic to act on your desire?

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  • letthemfall: Our society might well be unequal but it is nevertheless more equal than most

    icarus: It is even easier to offer theories without specific proof than it is to accuse someone of a conspiracy theory. Wthout proof, most theories of this kind, have to be categorised as a conspiracy theory

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  • flashman
    That may be true, especially comparing us to 3rd world countries and America, but not I think northern Europe. But we are getting more unequal, which is not good. As for proof on the culpability of politicians or the fault of the system if you like, I think their actions (Labour’s included) have manifestly benefited large corporations, especially banks; and the consequences of sovereign bailouts in the past have shown how weighted the world economy is to the economically powerful. Coupled with the clear data on growing inequalities, I think the case against the hegemony is pretty clear. Of course this is not exactly new: pre-WW2 inequalities were indeed stark, but the changes taking place up to the 70s have now gone into reverse at the fast pace allowed by modern financial systems.

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  • “Wthout proof, most theories of this kind, have to be categorised as a conspiracy theory”. Which theory are we talking about here?

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  • ” how weighted the world economy is to the economically powerful”
    Isn’t that a characteristic of capitalism – capital begets (others’) capital?

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  • icarus: I have mostly been referring to your strap line – “Are the political classes committed to recession?” To my mind it is asking us to debate whether or not there is a conspiracy by the political classes to entrench the recession (for the purpose of accelerating the process of wealth concentration). I say no and have been questioning the existence of any proof that might suggest that it is, in fact, true

    It was a good question and I responded because I sensed that there might be a good debate in it.

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  • letthemfall: As we have discussed before, the process of wealth concentration/reverse distribution, is better documented in the US where they once achieved arguably the greatest distribution of wealth ever seen. While we were mired in post-war gloom, they enjoyed an economic boom that gave factory workers the fabled three cars and a large home. Sadly they have been going backwards for decades. As I said earlier, this is a symptom of a economic decay/reversal. Poorer countries have always had their maharajahs and the US is starting the process of reverting to the maharajah/peasant scenario. Hopefully they can arrest this decline

    The picture is less clear in the UK, where we have large numbers of tradesmen (and the like) who enjoy foreign holidays, home ownership and fancy cars. On the other hand, we have well educated folks who are doomed to rent their homes for a lifetime. We never quite achieved the distribution of wealth seen in 50s and 60s America, so the reversal is less obvious. Many ‘ordinary’ people in the UK became noticeably richer in the 80s, 90s and 00s, so it is hard to completely agree with your assertion that there has been a reversal since the 70s (for some it is undoubtedly true)

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  • flash @17 – I think his answer to that one is “not in the sense that they get together to conspire such an outcome, but several of their self-serving policies lead in that direction” then he’d go into the disconnect between finance and industrial capital, between what’s good for portfolios and bondholders (private equity, asset stripping, privatisation of public facilities, offshore tax evasion and debt loading, austerity, QE being better for stimulating stocks and asset prices than for creating employment etc.) and what’s good for economic growth. Since you seem to agree that there is some such disconnect we’ll have to disagree about how pervasive and corrosive this is.

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