Doug Henwood's Blog, page 64

Fresh audio product

Just added to my radio archives:

November 7, 2013 Max Blumenthal, author of Goliath: Life and Loathing in Greater Israel, on repression and daily life in that country

October 31, 2013 Michelle Chen, author of this article, on how drug companies use patents to screw the sick • Mark Ames on libertarianism and the Koch Bros. network

Fresh audio product

Just posted to my radio archives:

October 24, 2013 Bruce Bartlett, former Republican, on the lunacy of his former party • Isaac William Martin, author of Rich People’s Movements, on the history of popular mobilizations to untax elites (i.e., the Tea Party is nothing new)

October 17, 2013 Jodi Dean, professor of political science at Hobart & William Smith and author of The Communist Horizon, on the need for a left party • Kshama Sawant on her campaign as an open socialist for the Seattle city council

These programs mark a return to normalcy after some fundraising pre-emptions. If you want to keep these shows coming, please support KPFA and mention Behind the News when you do.

Me in Salon

Josh Eidelson interviews me about the shutdown, default, the Tea Party, and the rot of the American ruling class: “Tea Party’s shutdown lunacy: Avenging the surrender of the South”

Josh and I had nothing to do with the headline.

 

Me in Sydney, October 16-20

I’m going to be in Sydney, Australia, to speak at a conference on financial market dysfunctionality (!) at the University of Technology’s business school. Arriving early Oct 16, feeling like crap I’m sure, and leaving the afternoon of the 20th. Conference is on Thursday and Friday – my bit is on Friday.

Any suggestions of things to do, people to meet, etc.?

Fresh audio product

Just added to my radio archives:

September 19, 2013 Daniel Denvir on the crisis in Philadelphia public schools • Jonathan Crary, author of 24/7, on the ill effects of always-on culture

September 12, 2013 Sanjay Reddy on the Indian economy • Jesse Walker, author of The United States of Paranoia, on conspiracism

No new shows for a few weeks while KPFA fundraises. If you like these shows and want to keep them coming, please contribute to KPFA. Be sure to mention Behind the News.

Situating finance

I’ve long been bothered by activists’ recent habit of focusing on debt both as a political target and analytical center. This came to the fore during the Occupy moment, and continues today in, well, should we call it the post-Occupy era?

Yes, debt is a problem, no doubt about it. Given the age of many Occupy activists, student debt is understandably very much on their minds (as are crappy job prospects, which don’t always get as much attention). Before that, mortgage debt and exotic variations on it were major contributors to the financial crisis of 2008, and the inability to get the debt machinery going again has contributed to the weakness of the post-crisis recovery. And across the Atlantic, debt is obviously a major part of the European crisis, which goes on and on.

But debt is also symptom as well as cause. If education were free, as it should be, student debt wouldn’t be a problem. If we had a humane health care financing system, medical debt wouldn’t be a problem. If housing weren’t so expensive—and if rising prices weren’t taken as a sign of a “healthy” housing market (why is the rising price of one of life’s essentials a good thing?)—then mortgage debt would’t be a problem. If wages hadn’t been under relentless downward pressure for the last 30 years, people wouldn’t have borrowed so heavily against home equity during the bubble, and wouldn’t have put so much on their credit cards.

Along with that, there’s a mistaken theory making the rounds. Here’s a concise statement of it from Andrew Ross (someone I should say I like and admire a great deal, even if I’m disagreeing with him here), in an article (“The Politics of Debt Resistance”) in New Labor Forum:

In recent decades, however, elites in advanced economies are less and less dependent on profits from productive labor. They rely increasingly on unearned income from financial manipulation by circulating paper claims on the future in the form of debt-creation. This form of wealth accumulation has meant that the majority of populations in fully industrialized countries are now caught in a debt trap that fundamentally affects how they make a living.

This is only a partial truth. Trading profits of the sort that Andrew Ross alluded to above (“circulating paper claims”) are essentially a wash—one trader’s gain is another’s loss. But there’s much more to the story. The claims are claims on incomes earned in production.

There’s no denying that the financial sector has grown enormously in size and importance over the last few decades. But that doesn’t mean that production and productive labor have disappeared from view. A few numbers to make this point. In the second quarter of 2013, U.S. GDP—the total value of goods and services produced domestically—was $16.7 trillion. Of that, $8.3 trillion—half the total—was produced by nonfinancial corporations. Just over half of that, $4.7 trillion, went to pay employees. These same nonfinancial corporations “earned” $1.2 trillion in profits, after paying salaries and other expenses. Financial corporations, though huge, contributed only about 15% as much as their nonfinancial counterparts to GDP. (See table 1.14 here—alas, no direct link is possible.)

Of course, finance is very big—I’m not trying to deny that. But where does its money come from? A lot of it from income earned in production. Firms and their employees pay interest and fees to their bankers. (In the second quarter of this year, nonfinancial corporations paid out a net of $304 billion in interest to creditors, and households another $244 billion.) And nonfinancial corporations have been shoveling out huge quantities of cash to their shareholders, some of whom are individuals, but many of whom are financial institutions. Combine traditional dividends with other means like share buybacks and takeovers (both of which involve corporate resources going to buy up outstanding stock), and there’s been a massive transfer of cash from corporate treasuries to shareholders—an average of $867 billion a year since 2011.

The conclusion to draw from that blizzard of numbers is that finance gets most of its money from corporations and workers engaged in the real world of production. Appearances to the contrary, financiers aren’t creating the stuff ex nihilo. The financial and the real are intimately connected to each other. So if you want to talk about debt, you shouldn’t stop there—you need to start talking about debt for what, serviced by income from where.

Matt Yglesias just wants to believe…

…that Census data showing real median household income is slightly below 1989 levels is wrong, so he went searching for another data source to support his hunch. (Real means adjusted for inflation; median means right at the middle of the income distribution, with half of all households above, and half below.)

In his first post on the topic, “Median family income since 1989: Is the stagnation real?,” Yglesias drew on an assortment  of feelings to make his Slate-ish contrary case: bigger better cars, bigger better TVs, MP3 players, and, of course, the Internet. Therefore, the Census report is fishy. But the Census figures come from a survey of over 50,000 households (technical details ‎here), which sounds like a more reliable source than Matt’s gut. And they’ve been at it for decades—family data begins in 1947, and household data in 1967.

But, perhaps realizing that anecdata doesn’t really cut the mustard, Yglesias found himself an actual data source, the Consumer Expenditure Survey (CEX) from the Bureau of Labor Statistics (BLS) to support his hunch. (It’s abbreviated CEX so as not to confuse it with the Current Employment Statistics [CES], the source of the monthly payroll data.) So he rolled out his discovery in a piece posted on Friday, “BLS incomes have risen since 1989.” Anyone familiar with U.S. income stats knows that this is ill-advised. But you need not have read deeply in the income literature—all you need do is read the BLS’s FAQ, which advises against relying on CEX income data:

If you want to relate the expenditures of consumers to their income and characteristics, the Consumer Expenditure Survey is the primary source of data. However, for users interested only in income information, data published by the Census Bureau of the U.S. Department of Commerce may be a better source of information. Data from the Current Population Survey are based on a much larger sample size. For income information, visit the Web site www.census.gov/hhes/www/income.html….

So the BLS itself recommends using the very Census data that Yglesias wants to dismiss.

More on income and poverty figures in the next issue of Left Business Observer, now in preparation.

On Panitch & Gindin and American decline

These are comments I delivered at a panel on The Making of Global Capitalism, by Leo Panitch and Sam Gindin, at the Rethinking Marxism conference, held at the University of Massachusetts–Amherst, on September 20, 2013. I interviewed them about the book here.

I want to start by saying that I greatly admire this book, and pretty much everything these two guys have done over the years. Unusually for the genre, I meant every word of the blurb I supplied for it. A while back, I was on a panel with Radikha Desai, on which she argued that the U.S. empire was not really much of a success compared to its British predecessor, which made me wonder what planet she’d been living on. (Given the stars of this panel, it can’t be her residence in Canada that led to this strange conclusion.) The thing has been incredibly successful on its own terms, and Leo and Sam are excellent at pointing out some of the mechanisms of its success, like the skillful incorporation of the second tier powers like Western Europe and Japan (I could say Canada as well, but it’s something of a special case). They have a high standard of living, and can even ride a moral high horse now and then while the U.S. military does the dirty work of imperial policing. Of course, life in the third and fourth tiers of the empire is another story—one of debt and profit extraction and the occasional CIA-sponsored coup.

And the ability of the U.S. planning elite to transcend immediate national interests to promote the health of the global system has been extremely impressive. Just to pick one example of something I found profoundly clarifying, I never really understood U.S. strategy around Middle Eastern oil. Noam Chomsky likes to quote a 1940s planning document on what a strategic prize control of that oil is, but once the producing countries nationalized that oil in the 1970s, it didn’t seem like the U.S. derived any great economic or strategic advantage from its influence and power in the region. After all, we produce far more hydrocarbons domestically than most of the second tier countries, and our immediate neighbors produce plenty as well. Leo and Sam offer a much more satisfying explanation: the U.S. interest is in the free flow of oil for the health of the global system.

And then there was support for the rebuilding of Japan and Europe after World War II—and in more recent decades, the encouragement of European unification. Narrow self-interest would have viewed these actions as the nurturing of potential competitors to U.S. business—and it’s turned out that way, they are. But again, the health of the global system demanded it, and the planners rose to the occasion.

Of course, I had to come to the “but” part of this little commentary, and here it is. You may have noticed that at the beginning I said the U.S. empire “has been” very successful on its own terms. And I said the planners “rose” to the occasion. The choice of verb tenses gives a clue to where I’m going: are the best days of the American empire behind us? I’m phrasing this as a question because I’m not fully sure of the answer. The claim was made without a question mark in the 1970s and 1980s, and ended up looking foolish in the 1990s. More recently, a lot of analysts used the financial crisis of 2008—it’s a little hard to believe that Lehman Bros. collapsed five years ago, and, as Martin Wolf pointed out in the Financial Times the other day, we still live in Lehman’s shadow, making it at once old news and a current event—to pronounce the death of neoliberalism, but the thing soldiers on. Enormous state resources were successfully mobilized to keep the banks not merely afloat, but dominant. Neoliberalism lives, at least for now. One should be on guard against publishing premature obituaries, both for empires and regimes of accumulation.

But I do want to list some reasons why I think the empire has entered a decadent phase. A couple of years ago, word reached Leo that I’d given a talk in Ottawa that sounded declininst, and he was alarmed. Until then, we’d seen pretty much eye to eye on the incorrectness of the declinist line, and he was concerned that I was embracing unsound doctrine. Sorry, Leo, I’m going to be unsound for a bit.

Several things strike me as signs of rather profound rot. Let’s start with the narrowly economic—specifically investment.

(If I had time I could talk about the rise in U.S. foreign debt, a trend that survived the Great Recession. Some argue that the continue ability of the U.S. to sell its debt is a sign of strength—which it is, until someday, foreigners decide not to buy any more, and then it isn’t anymore. Remember that Alan Greenspan said during the housing bubble that there was no reason to worry because things were going well so far. But back to investment.)

U.S. corporations are highly profitable and flush with cash. At last count (Z,1 Release) , U.S. nonfinancial corporations had nearly $16 trillion in financial assets on their balance sheets, almost as much as they have in tangible assets. The gap between internal funds available for investment and actual capital expenditures—what’s called free cash flow—is very wide at around 2% of GDP. That’s down from the high of 3% set a couple of years ago, but still higher than at any point before 2005. Instead of investing—and remember, profitability is quite high—corporations are shoveling cash out to their shareholders. Through takeovers, buybacks, and traditional dividends, nonfinancial corporations are transferring an amount equal to 5% of GDP to their shareholders these days—again, down some from recent highs, but very high by historical standards. This reflects the victory of the shareholder revolution, a crucial component of the neoliberal era of the last three decades, which established the fact that making shareholders happy is the principal reason for a public corporation’s existence. And that happiness is measured over the very short term: more money, now. The future, well, we can worry about that some other time. Alfred Marshall famously defined interest as the reward for waiting, but American capital has lost all patience (not that interest rates these days offer much of a reward).

The lack of interest in investing for the long term is visible in the national income accounts as well as corporate accounts. What matters for the accumulation of real capital is net investment—the gross amount invested every year less the depreciation of the existing capital stock. We’ve just gotten numbers for 2012, and they’re remarkably low. (See tables 5.2.5 and 5.2.6 here.) Private sector net nonresidential fixed investment (as a percent of net domestic product, or NDP) fell below 1% in 2009. It’s recovered some, to just over 2% last year, but that’s half the 1950–2000 average, and lower than any year between 1945 and 2009. We won’t have 2013 numbers until August of next year, but it’s looking like they’ll stay in this depressed neighborhood. Two things are responsible for this: low levels of gross investment to start with, and a skew of investment towards short-lived, quick return goods.

Public investment is even weaker. Net investment by all levels of government was just under 1% of NDP in 2012, the lowest since 1949 (following the postwar demobilization). Federal net investment was very close to 0% of NDP. Though state and local net investment was positive, but at the lowest level it’s been since the late 1940s.

When measured in real dollars, the trajectory of net investment has to be described as a collapse from which we’ve barely recovered. Net domestic fixed investment of all kinds in 2012 was 54% below its 2005 peak. Public investment was down 43% from its 2004 peak. Residential investment was down 89% from its 2005 peak. Private nonresidential fixed investment was 32% below its 2008 peak. In most cases, real net investment is at late 1970s/early 1980s levels—that, even though real GDP has more than doubled over the last three decades.

I suppose we could talk for hours about the differences and commonalities between an owning class and a ruling class, but what this net investment story tells me is that we have an elite interested in nothing other than short-term enrichment. At that, it’s been very successful. As we learned the other day, 95% of the growth in income between the end of the recession in 2009 and last year went to the richest 1% of the population. But it looks like it’s taking the money and running. It doesn’t seem to have much faith in the future.

Which takes me to the political, and then the psychological, sphere. It is amazing to watch the U.S. Congress seriously flirt with defaulting on Treasury debt. It makes you have to rethink everything you thought about capitalist power and the state. I doubt they’ll actually default—there will be some last second deal to raise the debt ceiling, temporarily, but we’ll probably be back here again soon. It’s something of a mystery to me whom the current Republican party represents—surely it’s not classical Wall Street interests, because they wouldn’t be playing chicken with the status of Treasury bonds. But those Wall Street interests, and their friends in the Fortune 500, don’t seem to be sitting the back-benchers down for a lecture on their class duty. (Or if they are, the back-benchers aren’t listening.) The contrast with the planning elite that came out of World War II that Leo and Sam write about is stark.

And now onto the psychological realm. I’ve been thinking lately about what we might call the neoliberal self. Gone seems to be the classically bourgeois executive ego, a relatively stable, if sometimes anal-retentive structure to guide the subject through life. In its place is a much more fragmented thing, adaptable to a world of unstable employment and volatile financial markets—but unable to think seriously about long-term things like social cohesion or, god save us, climate change.

The material basis of this transformation looks to be the replacement of the relationship by the transaction, to steal the language of corporate governance. Workers are told to run their lives like little entrepreneurs, moving from one ill-paying short-term job to another, or maybe holding two or three at a time. And at the top of the society, we see the erosion of the planning function, and any rationality beyond the most crudely instrumental. It’s been a long time since I read Polanyi, but this seems to me a perspective on the social rot produced by market-regulated societies, from the macro level of investment down to the socially shaped psychology of how we think and feel. I don’t see how the imperium can long survive this sort of pervasive rot.

Fresh audio content

Just posted to my radio archives:

Sepember 5, 2013 Greg Shupak, author of this article, on the bad effects of NATO’s Libyan adventure • Monica Potts on the declining life expectancy of poor white women • Gayatri Chakravorty Spivak on Gramsci (excerpts from an August 24 talk at the Gramsci Monument)

August 29, 2013 Mariana Mazzucato, author of The Entrepreneurial State, on the vastly unacknowledged role of the state in supporting technological breakthroughs • Anna Allanbrook, principal of the Brooklyn New School, on education, progressive and otherwise

Fast food: bad mistakes, deleted

I really screwed up my numbers on the fast food post (now deleted). Like Rogoff and Reinhart, I made a basic Excel mistake, and produced exaggerated nonsense. A doubling of wages would require a 20% price increase, not 67%. (Thanks to Seth Ackerman for pointing this out.) I still have lots of political doubts about this stuff, but I’ll keep quiet for now and do nothing but apologize.