Austerity Is Bad for Us and No Fun

From Bloomberg courtesy of Hullabaloo, Rutgers history professor James Livingston on the disconnect between history and economic "conventional wisdom":

As British author John Lanchester explained, when the “jet engine of capitalism was harnessed to the oxcart of social justice” after World War II, the lives of ordinary people got better, and the “most admirable societies that the world has ever seen” were born. Everybody knows that “the prosperity of the few is to the ultimate benefit of the many.” To which I say, baloney.

Growth has happened precisely because net private investment has been declining since 1919 and because consumer expenditures have, meanwhile, been increasing. In theory, the Great Depression was a financial meltdown first caused, and then cured, by central bankers. In fact, the underlying cause of this disaster wasn’t a short-term credit contraction engineered by bankers. The underlying cause of the Great Depression was a fundamental shift of income shares away from wages and consumption to corporate profits, which produced a tidal wave of surplus capital that couldn’t be profitably invested in goods production -- and wasn’t invested in goods production.

In terms of classical, neoclassical, and supply side theory, this shift should have produced more investment and more jobs, but it didn’t. Paying attention to historical evidence allows us to debunk the myth of private investment and explain why the redistribution of income has become the condition of renewed, balanced growth. Doing so lets us see that public-sector incentives to private investment -- say, tax cuts on capital gains or corporate profits -- are not only unnecessary to drive economic growth; they also create tidal waves of surplus capital with no place to go except speculative bubbles that cause crises on the scale of the Great Depression and the recent catastrophe.

Robust, balanced growth requires a more equitable distribution of income that favors consumers over investors, with all that implies for public policy, social theory, and, yes, moral philosophy. But to see this last requirement clearly, we have to rid ourselves of the conventional wisdom on the heedless extravagance of consumer culture.

Why do we accept the commonsense notion of how growth happens? The short answer is that the mainstream theories of prominent economists and the conventional wisdom of serious journalists constantly reinforce the myth. But the culprits are not just the supply-side insurgents who stormed the Keynesian citadel in the 1970s, then planted their flag inside the Beltway. The Democratic Party that reinvented itself in the 1990s now shares the same assumptions that guide the Republican Party -- the same assumptions that let the liberal New York Times scare its poll respondents off taxing the wealthy.

More here.

A few observations:

1. Karl Marx asserted as far back as the mid 19th century that one of capitalism's problems, among many, is that it has a tendency to squeeze profits so much that it ultimately robs itself of any real markets in which to do business. That is, there is a certain lower threshold in wages below which capitalism loses its ability to function on a large scale. So if capitalism, in its totality, gets too greedy, it destroys itself. That's one problem, among many, with the lopsided distribution of wealth with which we are now dealing.

2. I've written at great length here at Real Art about how utterly fucked up the public discourse is on economics, and a great deal of that is because politicians and pundits alike don't really know much about the field and rely heavily on "conventional wisdom." But I've also written, to a lesser extent, about how economics itself is a bit fucked up, too. That is, economics as a field of academic study. In brief, people in the profession like to think that the field is a science, like chemistry or physics, but it's not. I mean, it approaches the topic in a scientific way, but relies on so many assumptions for the construction of its models, assumptions which are often flawed, that there's just no way you can compare economics favorably to any of the hard sciences. Don't get me wrong: economics does, indeed, possess a great deal of value as a field of study. But it's faulty in numerous ways. And the herd like behavior of economists described above is only one of those ways.

3. It cannot be understated how extraordinarily significant it is that the Democrats embraced the neoliberal point of view back in the 90s. That's when they became virtual Republicans on everything but the so-called social issues. That actual Republicans twist themselves in knots concocting differences between the two parties on economic issues these days is a source of great amusement, but irrelevant in the grand scheme: the economic affairs of our nation are now, and have been for some years, governed by false conservative economic principles. To call Obama a "socialist" is to make Marx turn in his grave.

4. I have to think deeply about this writer's assertion that heavy consumption is the only way to make the economy function. I mean, it makes sense, millions of Americans buying toothpaste and flat screen TVs. But, as longtime Real Art readers already know, I'm very troubled by the materialism and its component selfish values that necessarily accompany consumerism. How can we consume lots of stuff while at the same time pursuing higher humanistic values?

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