Wednesday, August 3, 2011

How the Other Side Thinks

At least someone is happy about the debt-ceiling deal:
Low government debt yields may reflect concern about the health of the economy and the drag spending cuts would have on gross domestic product.

Reductions are “going to be good for Treasuries, ironically, because it’s bad for the economy,” Tad Rivelle, the head of fixed-income investment at Los Angeles-based TCW Group Inc., which manages about $115 billion, said in an interview last week. “It ought to further restrain economic growth by in effect withdrawing a good deal of fiscal stimulus.” 
By "good for Treasuries," he means good for people who own Treasuries.

This brings out a point I've been thinking about for a while. Marxist  and mainstream economists don't agree on much, but one view they do generally share is that under capitalism, growth is the central objective pursued by the state. Maybe we should not take that for granted.

For individual capitals, growth, endless accumulation, is a necessity imposed by the pressure of competition. And when the individual capitalist tries to influence the state they are generally looking for measures to help them grow faster. They have to, it's a condition of their survival. But insofar as the capitalist class as a whole (or some substantial fraction of it) exercises political agency, they're not subject to competition. An individual capital needs to grow as fast as possible so as not to be overtaken by its rivals; but for capital as a whole, there is no equivalent pressure. What capital as a whole needs from the state is to maintain its basic conditions of existence and secure its political dominance. And that may well be as well achieved through slower growth, as through faster. Directly, because the labor supply is liable to be dangerously depleted by rapid growth. More broadly, because growth is inherently chaotic, unpredictable and destabilizing. This isn't in the textbooks but you can learn it from Schumpeter just as well as from Marx. Or from just from looking around.

There's a long line of arguments, going back to Marx's reserve army of the unemployed, via Kalecki's "Political Aspects of Full Employment," formalized in the postwar period as Goodwin cycles or Crotty and Boddy's political business cycles, and most fully developed in Glyn et al.'s Capitalism Since 1945, that periods of low unemployment can't be sustained under capitalism, because they put upward pressure on wages and more broadly leave workers overly confident and politically empowered. Greenspan, bless his shriveled soul, was onto something important when he insisted in the late 1990s that the Fed could tolerate low unemployment without raising interest rates only because workers were intimidated by downsizing and the loss of job security.

Now, these are cyclical arguments. And the US hasn't had a cycle of this kind since the 1980s. The last couple of downturns haven't been about wages, at least overtly, but about asset bubbles and oil prices. But even if this recession wasn't caused by the Fed raising interest rates to choke off wage growth (and clearly it wasn't) capital and its political representatives could take advantage of it opportunistically to force down the wage share. One wouldn't deliberately provoke a deep recession just to reduce wages, because of the political risks; but if one stumbles into it and the politics turn out to be manageable, why let a good crisis go to waste?

More broadly, if high growth rates are risky for capital, and if they were only politically necessary thanks to competition with the Soviet Union (this is an important argument that's not quite spelled out in the Glyn book), then we shouldn't be shocked if the post-Cold War state ends up preferring growth-reducing policies. Brad DeLong has been complaining lately about the failure, as he sees it, of the state to live up to its role as the committee to manage the collective affairs of the bourgeoisie. But maybe he just hasn't been invited to the meetings.

UPDATE: Yglesias makes a similar argument in a less provocative way. Before the 1980s, we had episodes of high inflation, and no episodes of sustained high unemployment. Since the 1980s, we've had no episodes of high inflation, but we've had repeated episodes of sustained high unemployment. The obvious interpretation, which I share with Ygelsias, is that the Phillips Curve is not vertical even over the long run -- there is a secular tradeoff between employment and price stability, and since Volcker the Fed's preferences have shifted toward the price-stability side. Why this is the case is a different question, but it seems safe to say it has to do with the diverging interests of workers and owners and their respective political strength.

19 comments:

  1. When people talk about 'growth' they mean the growth of total or average income. But capitalists are not interested in the total or average income, they're interested in their own income, and accordingly, their own personal income growth rates.

    Is there reason to assume the policies that maximize the income growth of the rich happen to coincide with those that maximize average or total income growth? Let alone the income growth of those who have the least income, which should surely be the priority?

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  2. Couldn't we see it as a conflict between two different groups of "capitalists"? Such as financial capitalists VS manifacturing capitalists, where manifacturing capitalists are losing the battle because the USA is an importing country?

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  3. frakface-

    It's certainly true that capitalists are not interested in aggregate income. But I'm going a little further here -- I'm not sure they're necessarily even interested in policies that raise their own income. The drive to accumulate comes from the process of competition between capitalists; insofar as they are able to act collectively, they do so to maintain the conditions of their collective existence, not to maximize anything. What's more, anyone in the top fractions of a percent of US income has satisfied their material needs with plenty left over; at that point, the only things that are genuinely scarce are status and domination.

    RL-

    This is a very important point, that's been lurking behind a lot of recent discussions rentiers. (See here and here and here.) I think one of the most pressing political-economy questions is the extent to which owners of financial assets are distinct sociologically from productive capitalists. I'm hoping to do a long post on this soon, but in the meantime, the best discussion of this issue I've seen is in Dumenil and Levy's The Crisis of Neoliberalism. Highly recommend it, if you're interested in this stuff.

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  4. @ Josh:

    I have misgivings about this post.

    “By "good for Treasuries," he means good for people who own Treasuries.”

    It’s actually useful to distinguish between Treasuries and the people who own them. All rich people and institutions who own Treasuries also own stocks, which tend to do badly in a slow economy. So even if Treasuries do well, their owners may suffer net portfolio losses from the same economic forces that buoy their Treasuries.

    This pattern of diversified investment by the rich also explains why, although there is surely a sociological distinction between passive holders of financial assets and active entrepreneurs and executives, that distinction is not a fault line along which economic interests clash. All these people own stocks and so derive their income, directly or indirectly, from sales and business growth.

    The main thrust of your post is to posit a unitary, self-conscious “capital” guiding macroeconomic policy, with the state as its coordinating committee. I don’t think that’s tenable, even when watered down to unfalsifiability with the hedge, “insofar as the capitalist class as a whole (or some substantial fraction of it) exercises political agency…” There certainly are policy interests—smashing unions, cutting taxes, deregulation—that are broadly, though not unanimously, shared by rich people and businesses. But leaving aside the inapt finance-vs.-productive-capital opposition, business is often bitterly divided by clashing economic interests. (Exxon wants expensive oil, United Airlines and Ford want cheap oil.) Also, to exercise political power, the representatives of rich people and businesses must cater to voters who are themselves divided, inconsistent and often at odds with business interests. (Businessmen love immigration, but the Republican base hates it.) It’s not plausible that this cacophony of interests and politicking would coalesce into a coherent macroeconomic policy for a unitary “capital” to pursue.

    Your attempt to specify that macroeconomic consensus shows just how implausible it is. You propose that capital has been pursuing a post-Cold War path of low growth, despite inflating one bubble after another, because high growth leads to high wages and uppity workers except when it doesn’t because workers are too scared to be uppity. More vaguely, capital dislikes growth because it is unpredictable and destabilizing. And so, currently, capital has tried to head off destabilizing growth—by engineering the transcendentally destabilizing debt-ceiling crisis. And all this low growth has been agreed to at metaphorical committee meetings where, apparently, the construction-industry rep has acceded to the collapse of his industry for the good of capital as a whole. Reading this argument, one is left wondering what on earth capital will do next.

    The concept of a unitary, self-conscious capital acting independently of the interests of capitalists and magically overcoming the collective-action problem yields confusion and obfuscation with no analytic payoff. It’s more consistent, and no less parsimonious, to drop the conceit of a unifying intelligence and just assume that there are various groups of rich people, businesses and their allies whose interests and ideologies, partly shared and partly conflicting, interact in complex ways. There is no committee and no macroeconomic consensus for capital to articulate. More fundamentally, there is no coherent rationale to be discerned amid the chaos of macroeconomic reality. All you have is an unsupported belief in a mystic holism—sorry, substantial-fractionism—exerting a trans-historical agency without any visible mechanism. This isn’t even vulgar Marxism—it’s vulgar Hegelianism.

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  5. @ Josh:

    “By "good for Treasuries," he means good for people who own Treasuries.”

    It’s useful to distinguish between Treasuries and the people who own them. All rich people and institutions who own Treasuries also own stocks, which tend to do badly in a slow economy. So even if Treasuries do well, their owners may suffer net portfolio losses from the same economic forces that buoy their Treasuries.

    This pattern of diversified investment by the rich also explains why, although there is surely a sociological distinction between passive holders of financial assets and active entrepreneurs and executives, that distinction is not a fault line along which economic interests clash. All these people own stocks and so derive their income, directly or indirectly, from sales and business growth.

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  6. @Josh:

    My main misgiving about this post is that it posits a unitary, self-conscious “capital” guiding macroeconomic policy, with the state as its coordinating committee. I don’t think that’s tenable, even watered down to unfalsifiability with the hedge, “insofar as the capitalist class as a whole (or some substantial fraction of it) exercises political agency…” There certainly are policy interests—smashing unions, cutting taxes, deregulation—that are broadly, though not unanimously, shared by rich people and businesses. But leaving aside the inapt finance-vs.-productive-capital opposition, business is often bitterly divided by clashing economic interests. (Exxon wants expensive oil, United Airlines and Ford want cheap oil.) Also, to exercise political power, the representatives of rich people and businesses must cater to voters who are themselves divided, inconsistent and often at odds with business interests. (Businessmen love immigration, but the Republican base hates it.) It’s not plausible that this cacophony of interests and politicking would coalesce into a coherent macroeconomic policy for a unitary “capital” to pursue.

    Your attempt to specify that macroeconomic consensus shows just how implausible it is. You propose that capital has been pursuing a post-Cold War path of low growth, despite inflating one bubble after another, because high growth leads to high wages and uppity workers except when it doesn’t because workers are too scared to be uppity. More vaguely, capital dislikes growth because it is unpredictable and destabilizing. And so, currently capital has tried to head off destabilizing growth—by engineering the transcendentally destabilizing debt-ceiling crisis. And all this low growth has been agreed to at metaphorical committee meetings where, apparently, the construction-industry rep has acceded to the collapse of his industry for the good of capital as a whole. Reading this argument, one is left wondering what on earth capital will do next.

    The concept of a unitary, self-conscious capital acting independently of the interests of capitalists and magically overcoming the collective-action problem yields confusion and obfuscation with no analytic payoff. It’s more consistent, and no less parsimonious, to drop the conceit of a unifying intelligence and just assume that there are various groups of rich people, businesses and their allies whose interests and ideologies, partly shared and partly conflicting, interact in complex ways. There is no committee and no macroeconomic consensus for capital to articulate. More fundamentally, there is no coherent rationale to be discerned amid the chaos of macroeconomic reality. All you have is an unsupported belief in a mystic holism—sorry, substantial-fractionism—exerting a trans-historical agency without any visible mechanism. This isn’t even vulgar Marxism—it’s vulgar Hegelianism.

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  7. Look, to some extent this stuff is just an epistemic divide. You're not going to convince me, I'm not going to convince you, so we just have to talk about other things. But I'll try to respond on a couple points.

    First of all, I'm not positing, I'm wondering. "Insofar" isn't a weasel word, it's an expression of genuine uncertainty. And at best, the statement that classes are genuine entities with interests that they are sometimes able to act on, isn't a law like the inverse square rule for gravity, it's a heuristic, a tool for thinking with. but so what. We're not competing on a game show here you have to give your answer in the form of a falsifiable claim. That goes double for whether it's meaningful to talk about a divide between finance and productive capital. Doug Henwood, who knows a lot about this stuff, thinks there is no such thing. Personally, I say it's an open question because I think it's an open question. But while I don't know the answer, I know it can't be deduced a priori either way.

    More importantly:

    On the general question, can the capitalist class as some kind of coherent wholechoose slower growth in order to restrain the claims of workers, the answer isn't that's impossible, or it's maybe possible, or we don't know. It's Yes, absolutely. We observe it regularly, in the form of monetary policy. Throughout the decades after WWII, sustained low unemployment led to accelerating wage growth, which led to higher interest rates and the more or less deliberate triggering of a recession by the monetary authorities. The Volcker episode in this country is the most dramatic example, but it's only different in degree from many others here and in Europe. (I'm not sure how much this dynamic existed elsewhere.) This isn't conspiracy theory, it's not some radical critique, it's just a straightforward, uncontroversial observation: When unemployment falls and wages rise, the central bank tightens in order to reduce aggregate output. This hurts profits and growth in the short run, but it maintains the conditions for continued profits and growth in the future. Individually, the vast majority of capitalists would prefer to continue expanding production and hiring more workers, but collectively, they need hiring to stop before it depletes the pool of unemployed workers. That's why central banks, as a matter of explicit policy, raise rates when unemployment falls below some threshold.

    So at a cyclical level, when individual capitalists want to grow, but their collective interest is in a slowdown, we get a slowdown. Again, this isn't a leftwing view, it's completely uncontroversial. (What is controversial is whether rising wages are considered bad because they will cut into profits -- the left wing view -- or because they will feed into inflation -- the mainstream view. But for purposes of this discussion that's irrelevant.) Now, obviously the slowdown doesn't happen because there's some capitalist mindmeld, but because there is a concrete institution, the central bank, with the tools to do produce it, plus an ideology (and various social influences) that leads them to use the tools in a certain way. But all social acts require institutions of some kind. Someone had to set up the central bank, and someone has to make sure they don't lose their focus on "price stability." Collective action problems are overcome; there's nothing magical about it.

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  8. dictateursanguinaireAugust 4, 2011 at 12:36 PM

    I'm assuming you have heard this since you apparently know Doug Henwood personally but have you listened to his recent (30 July) interview w/ DeLong that's sort of roughly about all this? Really interesting dialogue

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  9. Interesting post and discussion. A couple quick points:

    1. Understanding class as a historical agent is not positing a "committee" or whatever. Saying it is reveals methodological individualism which is in itself an a priori assumption.

    2. I agree with Josh that the main class interest of the capitalist class is the reproduction of both capitalism, and itself. I doubt that this is compatible with no growth, though, in the long term. (It obviously is in the short term or capitalism would have long since collapsed.)

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  10. ds-

    Doug is an old friend of mine (I was his research assistant back in the 90s) but I hadn't heard that interview. Interesting stuff, thanks -- I need to start listening to Behind the News regularly again. DeLong's position, which I've heard him argue before, is that since the rich no longer hold their wealth exclusively in the form of fixed-income securities, as they largely did before WWI, there is no constituency for deflation. He's certainly right about the direction of change in the composition of financial wealth -- stocks as liquid welath didn't really exist until after the merger wave of the 1990s -- but I think he may be exaggerating the extent of the change. It's not widely recognized, but even today debt securities outweigh corporate equities by about two to one. Admittedly, a disproportionate share of debt is held by banks (but banks are political actors too!) but if you look just at the household sector and exclude pension reserves, equities only make up about half of assets, with the other half being almost all fixed-income securities of various kinds. So even if there is not going to be the kind of single-minded support for stable or falling prices that you saw in the 19th century, it is still the case that the tradeoff between growth and price stability is going to look quite different for the rich than for the vast majority of us who own no significant financial wealth and get all our income from employment. And that's just considering income -- as I'm suggesting, there's also political reasons for preferring slower growth.

    Now it should be said that Doug basically agrees with Brad that there's no objective reason for the elite to prefer deflation, and sees the fact that we're heading that way as a sign that the US ruling class is decrepit and brain-dead. And that may be. But austerity isn't just a US phenomenon -- are the European and Japanese elites rotten too? I think we should at least contemplate the possibility that it's not that the ruling class that misunderstands its interest, but Brad and Doug.

    christian-

    You're right, of course. But understanding how, concretely the ruling class rules is a very difficult question -- not least because they can't be the objects of social-scientific examination the way less privileged groups can. No participant-observer studies of FOMC meetings! Anyway it's certainly true that ruling class power is not only exercised explicitly through the state. Even if we decided that in the first instance that the drive for austerity is basically ideological, you still have to ask why capitalism produces that ideology. (OK, you could tell some story about austerity as some Freudian need to control one's emissions writ large -- Alan Simpson's Poopy Dog and Enema Man kind of invite it -- but I don't think that's sufficient.)

    And I should have been clearer, I don't think the no growth is either desired or likely. All I'm saying is that one of the main reasons the capitalist state has pursued high growth rates is historically is threats from rival states or systems; without those, we should expect the balance of forces in whatever process we think guides the state, to swing toward lower growth growth and stable prices.

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  11. @ Josh:

    Even the Volcker recession of the early 1980s is not as transparent a demonstration of capitalist class consensus as you think. You feel it’s self-evident that Volcker, Carter’s Fed chairman, raised interest rates in order to improve profits by stalling growth and lowering wages, rather than just trying to tame inflation. I’m not sure about that. The economic context he started with wasn’t full employment, but “stagflation” with moderately high unemployment and high inflation. Maybe Volcker was channeling an anti-growth capitalist consensus. Or maybe he was trying to smother inflation as a prelude to renewed growth. Maybe he was acting on behalf of pensioners who don’t care about unemployment (they’re retired) but hate inflation (they’re on fixed incomes). Maybe he was responding to the persistent public furor over a decade of soaring oil prices. Maybe he was pondering historical examples of destructive bouts of inflation. (Are anti-growth central bank policies automatic whenever there is full employment, or are they triggered only by rising inflation? That’s a crucial difference.)

    And if Volcker was pursuing an anti-growth capitalist consensus, why was Reagan at the same time pursuing a highly stimulative fiscal policy of massive deficits? Was that part of the low-growth capitalist consensus, or was Reagan, of all people, defying the capitalist consensus? That’s the kind of contradiction you run into when you posit a unitary class interest driving political policy. My explanation for this conundrum is that Reagan was enacting a true, stable capitalist consensus—cut taxes, smash unions, deregulate—while also ginning up growth, which is politically popular with capitalists and everyone else. Volcker was probably acting on anti-inflationary doctrine and institutional imperatives, independent of an anti-growth capitalist consensus that almost surely doesn’t exist.

    Your theory about the post-Cold War low-growth capitalist consensus is even weaker. That period has actually not seen consistently sluggish growth, but roller-coaster bubbles and collapses. And during this period, the Fed, putative tool of the anti-growth capitalist consensus, has happily blown the bubbles, refrained from popping them, and used monetary policy to try to restore growth. Your claim that capital has been liberated to pursue low growth and cow labor in this period because of the demise of the communist alternative just doesn’t align. Ironically, the one case of the Fed deliberately crimping growth, the Volcker recession, happened in the early 1980s with the Cold War still on.

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  12. @ Josh:

    Look, I’m not opposed to positing class interests that motivate a consensus of rich people and businessmen to lobby for coherent policies. Those demonstrably exist; for example, the drive to lower taxes, cut regulation and smash unions. They exist not because capitalists sacrifice their individual interests for the common good, which is a move that’s just not in the capitalist playbook, but because almost all capitalists recognize that such measures are very much in their individual interests. I’m also not opposed to viewing the state as a coordinating body that can effectuate a capitalist consensus. (Although the state simultaneously responds to many other political demands and has autonomous institutional imperatives, so it can never be regarded solely, or even chiefly, as the coordinating committee of capital.)

    What I’m opposed to is elevating such arguments from scientific proposition (complete with that stupid game-show triviality, falsifiable precision) to article of faith. Occasionally it makes sense to posit a capitalist class consensus, but usually it doesn’t. Before doing so, one needs to think hard, probe for contradictions and look closely at the evidence. Otherwise, one is simply repeating a mystic truism that leads to nothing but confusion and error.

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  13. This doesn't feel like a productive debate, in part because you don;t seem to be responding to what I write.

    I explicitly said that it *doesn't matter* here whether the Volcker contraction was intended to reduce inflation or lower wages, the point -- which you missed or ignored -- is that it shows that modern capitalism has institutions in place that more or less deliberately reduce growth for some longer term benefit. So it's not a priori impossible that a similar tradeoff could exist at over the longer term. (Now it happens that I believe that the goal of monetary tightening is often to hold down wages specifically, and not just to limit price increases across the board, I don't believe this because I think it's "self-evident," but because there is lots of, well, evidence for it. You don't have to read Henwood or Glyn (this or this) or Smithin or Greider or anything else on this if you don't want to, but the motivation of Fed decisions is actually a topic on which a fair amount has been written. In any case, reducing inflation and breaking the power of the working class go together closely in practice. Listen to Volcker himself: "The most important single action taken by the administration in helping the anti-inflation fight was defeating the air-traffic controllers' strike.")

    And I never said there was an anti-growth consensus. That's absurd. I said that while individual capitalists always want to grow as fast as possible, the capitalist consensus as embodied in the state has reasons to prefer slower growth and reasons to prefer faster growth, the relative weights of which depend on the historical context. And of course actual growth isn't simply the result of state policy, but is affected by all kinds of technological, demographic and international factors. In the 19th century the state tended to favor growth-restricting monetary tightness, in part because of the existence of a large class of wealth-owners who owned almost nothing but fixed-income assets. But this tight policy obviously had to contend with lots of factors that tended to produce rapid growth. And of course the rentiers weren't against growth per se, they just favored slower growth than could have been achieved if the money supply had been more elastic.

    an anti-growth capitalist consensus that almost surely doesn’t exist.

    It certainly doesn't exist in this post. What exists is the claim that there are political reasons for the capitalist class to favor slower growth, and other reasons for it to favor faster growth. I'm suggesting here that the turn toward austerity in the face of depressed output suggests that the former forces might have gotten stronger relative to the latter. And no, that's not an empirically-testable argument ... yet. It's an effort to think through what might be going on to help clarify our ideas so that we can figure out how to investigate this stuff empirically.

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  14. I’m not opposed to positing class interests that motivate a consensus of rich people and businessmen to lobby for coherent policies. Those demonstrably exist; for example, the drive to lower taxes, cut regulation and smash unions. They exist not because capitalists sacrifice their individual interests for the common good, which is a move that’s just not in the capitalist playbook, but because almost all capitalists recognize that such measures are very much in their individual interests.

    We agree on all that.

    But the specific context of this discussion is the elite consensus for austerity, which is clearly bad for profits and for productive capitalists. That's the puzzle, not support for tax cuts and opposition to EFCA.

    I can think of four explanations:

    1. Ideology is just that strong. ("Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.")

    2. The ruling class has gone soft in the head. (Doug's thesis.)

    3. There is a divide between the owners of productive enterprises and the owners of debt, and the latter are stronger.

    4. Capitalists get some benefit from a prolonged weak economy that offsets the direct cost of lower profits.

    I'm suggesting that we shouldn't rule out possibilities three and four, that's all.

    (To some extent, 4 can subsume subsumes 1 and 3, since some of the ways that classes are able to act collectively is precisely through ideology, and through the actions of more cohesive groups within the class.)

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  15. @ Josh:

    Your Volcker quote does support your characterization of the Volcker recession as an attack on labor in general, not just on inflation. I wonder if there are more systematic empirical studies of that distinction. For example, do the Fed and other central banks tighten up whenever there is full employment and rising wages, or only when their is rising inflation? (Or is it not possible to disentangle rising wages from rising inflation?)

    Your Volcker source also indicates that the Fed got some pushback on high interest rates and the recession from the Reagan Administration (though not from Reagan himself.) So that raises another crucial question: assuming there is a coherent capitalist consensus on some issue, to what extent is the state itself a unitary entity that’s whole-heartedly devoted to that consensus and capable of implementing it in a coherent fashion?

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  16. @Josh:

    To the four explanations for the “elite consensus for austerity,” I would add a fifth possibility: opportunistic Republican scare-mongering. Remember, the typical Republican voter is not a savvy capitalist but a retiree who buys gold on Glenn Beck’s advice. Panic about debt and inflation really rallies the base. But perhaps that’s just another tactical macroeconomic sacrifice for long-term capitalist gain.

    I would call it an elite preponderance rather than a consensus, because there are major dissenting factions. (It’s hard for me to believe that auto-makers are rooting for austerity, let alone low growth.) I don’t disagree with your other explanations. As for Reason 3, debt-holders hate growth and they rule the roost right now, maybe; you’ve asserted upthread that there’s a lot more debt out there than equity, so maybe my theory that stock-holding impels the rich toward favoring growth is on balance wrong after all (assuming that inflation risk looms larger in debt-holder’s minds than default risk.) As for Reason 4, capitalists see benefits from a prolonged weak economy despite the hit to profits, I would rejigger that. I don’t think capitalists will consciously support a policy that they believe will cause prolonged harm to their own profits for the greater good of the capitalist class. But how do they know that austerity will crimp their profits? They don’t, on an individual basis, and maybe not even collectively. So since profits are good for a lot of companies and investors, and since austerity comports with their pre-existing antipathy toward taxation and activist government and overmighty unions, and since many of them really do believe that lower public spending and debt spell higher growth, they like austerity. You’re assuming that an elite preponderance for austerity implies an elite consensus for low growth, which may not be true.

    So reason 4 is surely bound up with Reason 1, ideology, and Reason 2, chuckle-headedness. And that confluence of reasons may have yielded an elite preponderance. But that preponderance may have congealed, and probably did, around austerity for reasons other than its effects on growth, so that low growth is a byproduct of, rather than the conscious rationale for, the elite preference for austerity. And sure, there are always some bond traders looking to make a killing.

    I’m just not sure that all of this adds up to an elite that even knows its own mind. And if that mind resides at the Fed, which has been radically pro-growth for years, than the puzzle deepens.

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  17. @ Josh:

    Look, if you want to talk about specific industries or specific groups of capitalists or specific schools of capitalist thought favoring a low-growth macroeconomic policy at specific points in time, that’s fine. And if you want to say that the preponderance of those “forces” nudge specific organs of the state toward a particular policy at some point in time, that’s fine too. Arguments that link particular interests of identifiable capitalists to state policy by way of observable mechanisms of pressure or bribery or ideological suasion or revolving-door infiltration make sense and are appropriate (as long as they are supported by evidence and don’t trip up in contradictions). They are a useful framework for investigations of macroeconomic policy.

    What I’m leery of is general invocations of a unitary “capital and its political representatives” or a unitary “capitalist consensus embodied by the state.” Unless both consensus and state policy are broad-based, consistent, long-lasting and visibly linked, such constructions yield little in the way of insight or analytic clarity. What they usually serve up is retrospective rationalizations that are weak, contradictory, and polemical, and they tend inexorably toward occultism in their imagining of a coherent, nefarious intelligence behind the chaos of reality. To constantly strain to discern the mind of capital behind every zigzag of macroeconomic policy makes no more sense than to search for international communism behind every civil rights march.

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  18. Since I live in Italy, I have the example of the EU in my mind. IMHO, the politics of the EU are really unrational: for example, the ECB that rises rates while Greece is in crisis, or the euro that his kept apparently overvalued against the USD while many european countries have big problems in terms of balance of payments.
    The only way I can make sense of this politics are:
    1) governments usually go for the "least resistance" route
    2) Since we live in a capitalist world, this means that governments usually try to keep profits high, so that "capital" keeps expanding and hiring people
    3) for a long period (the "great moderation"), this meant creating a favourable environment for financial capital, that then trickled down to manufacturing capital and to workers
    4) this translated in economic theories and institutions that give great importance to financial capital, like the ECB, that apparently has mandate to control inflation but not to fight unemployment, and that is very independent from basically anybody
    5) then comes a crisis, but governments have neither the institutions nor the theorical means to fight the crisis
    6) so they go on their traditional course, that today is: appease the financial capital.
    Thus on the whole, I would go for 1&3 of JM's list above.
    I don't think that the ruling class actively wants to keep unemployment high, but since in some situations profit can only came from lower wages, sometimes some polices are enacted that tend to limit wages, and low unemployment means that workers can usually wrestle higer wages.

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