The global economy won't recover, now or ever

[Hannah Bell]

Virtually everyone everywhere-economists, politicians, pundits -- agrees that the world has been in some kind of economic trouble since at least 2008. And virtually everyone seems to believe that in the next few years the world will somehow "recover" from these difficulties. After all, upturns always occur after downturns. The remedies recommended vary considerably, but the idea that the system shall continue in its essential features is a deeply rooted faith.

But it is wrong. All systems have lives. When their processes move too far from equilibrium, they fluctuate chaotically and bifurcate. Our existing system, what I call a capitalist world-economy, has been in existence for some 500 years and has for at least a century encompassed the entire globe. It has functioned remarkably well. But like all systems, it has moved steadily further and further from equilibrium. For a while now, it has moved too far from equilibrium, such that it is today in structural crisis.

The problem is that the basic costs of all production have risen remarkably. There are the personnel expenses of all kinds -- for unskilled workers, for cadres, for top-level management. There are the costs incurred as producers pass on the costs of their production to the rest of us -- for detoxification, for renewal of resources, for infrastructure... The result is a growing profit squeeze, which is reaching a point where the game is not worth the candle.

The only sure thing is that the present system cannot continue. The fundamental political struggle is over what kind of system will replace capitalism, not whether it should survive. The choice is between a new system that replicates some of the present system's essential features of hierarchy and polarization and one that is relatively democratic and egalitarian.

http://www.foreignpolicy.com/articles/2011/01/02/unconventional_wisdom?page=0,9

[Systematic Chaos]

1. Net recommendation: 0 votes (Your vote: +1)

:eyes:

[Hannah Bell]

2. not sure i buy it. i just posted it because it was wallerstein in foreign policy --

so elites are reading it.

[Terry in Austin]

32. Wallerstein is worth following closely

He offers a historical perspective on economics and sociology that really puts a lot of things in place. He's unapologetic about capitalism, but doesn't have any Marxist ax to grind. If elites are reading him, it's a sign they just might be getting a clue.

Wallerstein and his "Braudel School" colleagues, notably Giovanni Arrighi, provide a great deal of insight using the world-systems model and a thorough analysis of the historical context in which our most fundamental political issues have evolved. Highly recommended.

[xchrom]

3. Interesting. Nt

[social_critic]

4. Disagree

There's nothing wrong when poor people get richer. And this is what's happening worldwide - and capitalism is the main engine for growth, because even China, which touts itself as a "communist" nation, has evolved gradually into a capitalist society - some could even say it's savage capitalism in some areas.

Worldwide, costs of production go up because as the poor people in China, India, Brazil, and other developing nations become richer, they consume more, and drive up commodity prices. When commodity prices go up, those providing commodities to the market get richer - and this is what's driving economic growth in nations such as Argentina, Chile, and Peru.

This doesn't mean the party can go on forever - population has to stabilize soon, and we have to learn to consume less, for example energy consumption in the US, Australia, and Russia is obscene. And evidently Americans are eating way too much when a large portion of the population is overweight.

One problem I see with articles such as this is their failure to propose a coherent alternative. Evidently socialism/communism doesn't work very well, it consistently delivers less wealth, and has a tendency to evolve into dictatorship as power is concentrated in the hands of party oligarchs.

My solution to the overall problem? Nations need to put in place a more efficient taxation system, to make sure tax shelters and mindless competition for capital are eliminated. It also helps if individual nation states implement clear legal regimes, and make sure the government and judiciary work efficiently. It's easier to catch tax dodgers when they don't have corrupt countries to hide in.

[SoCalDem]

5. The problem is that when people are considered "richer" when they enter mass-consumption status,

it does not bode well in the macro.

"Stuff" does not equal "wealth", but if producing "stuff" is the only way people can make money, a consumer economy is the result, and it's a dangerous way to run an economy because if demand slows, we all get sucked into the vortex.

[social_critic]

7. Producing stuff isn't the only way people can make money

They can also hit baseballs with a 300 average, sing stupid songs people like, pull teeth, tell jokes on TV, and sell religion. It really doesn't matter, whatever people do, they do it more efficiently when they do it on their own, or as part of alliances such as partnerships and corporations. When governments get involved, they have a tendency to screw up, because they don't face enough competition and are not allowed to fail - which reminds me, we can't afford to have banks too big to fail either unless we're ready to take them over and decimate their stockholders as needed.

There's nothing wrong with a consumer economy. When people consume, then other people have to provide what they consume. The key is for people to consume using the money they have, and not by borrowing excessively, which leads to bubbles.

When demand does slow, which it is bound to do, some of us suffer a bit. The key is for the system to have enough dampening. And this can't happen if the government is running huge deficits - in the case of the US, the deficit seems to be spent mostly on mindless wars and useless spending, so it's easy to fix if we just learn to live within our means and stop trying to be globocop.

Dampening is also provided when banks are regulated so they don't lend irresponsibly. Evidently bank managers are rewarded the wrong way by their stockholders, who are too greedy to know better, so we have to regulate them and make sure they behave. This can be done fairly easily as long as Congress isn't a bunch of corrupt bastards. Which takes us back to the key issue: we need better people running things in Washington. What we don't need is communists peddling a change away from capitalism. That would destroy the country's economy.

[kenny blankenship]

13. Indeed, in this country actually producing stuff is NO WAY to make money

but maybe that will change. Bullshit can go on for only so long.

[Statistical]

14. Actually manufacturing make a huge amount of money. It just all goes to the top.

Due to productivity gains. Average manufacturing worker now produces roughly 3x as much annually compared to the 1970s.
US manufacturing is hugely profitable.

There are just three issues
1) While US manufacturing hugely profitable plants require continual upgrades. Rather than upgrade it can even more profitable to simply build a less efficient plant in China

2) The productivity gains hasn't translated into higher wages. However don't think wealth isn't being generated it just isn't being generated for the worker.

3) Productivity is growing faster than demand thus less and less workers are needed to satisfy demand.


The idea that the US either doesn't manufacture anything (largest industrial output in the world) or it isn't profitable are misnomers.

[Romulox]

28. "Productivity gains" = stagnant wages, slashed benefits.

:hi:

[Statistical]

29. I agree 100%.

However if productivity is increasing and labor costs are flat (at best) where is the money going?

I was just pointing out the idea that manufacturing isn't profitable in the US is a false meme. It is hugely profitable, labor just isn't sharing in that profitability.

[social_critic]

38. Did you know you are a Ludite?

Productivity Gains mean more wealth creation. If you believe otherwise, you should advocate farmers pull their own plows, factory workers use threadmills to drive their tools, teachers use chisels and stone tablets to teach their lessons, police use smoke signals to call headquarters, fishermen use sailboats when they go fishing, iron miners do their work with pick and shovel, and so on and so forth...

[social_critic]

37. Singing is more profitable

Nice graphs, but it doesn't prove anything. We're discussing profits, not productivity. If we look at it, the most profitable type of business is being Lady Gaga. Investment is almost negligible, talent is a minor issue, and the profit margin is terrific.

[Hannah Bell]

27. and if people don't produce stuff, those people batting 300 get -- ?

you think people batting 300 get richer in a vacuum?

[social_critic]

39. Well Hannah, that's an excellent point

Somebody somewhere does have to make stuff. I was really moved when I realized Greek civilization was based on the wealth created by 30 thousand slaves who worked the silver mines, and were kept in horrible, inhuman conditions. As it turns out, Plato and Praxiteles had time to be famous because they were living off the misery of others. Nolan Ryan and John Lennon got a chance to be famous because there were grunts grunting away somewhere in full anonimity, making stuff.

[madokie]

6. Until we remember the lesser of us are human too

we're screwed. I don't mean the lesser of us as a derogatory term either.
This wealth inequity as it is now has to end

[stuntcat]

8. yep

There isn't enough energy right now for it to expand like it needs to. It could stabilize some but economies need to grow exponentially to be considered 'recovered'

[social_critic]

9. Nothing wrong with exponential growth

Let's say exponential growth is 4 % per year, and we learn to improve energy efficiency by 5 % per year - or develop new energy resources to provide for a combination of new renewables and efficiency such that energy prices remain stable. In such a case we can do fine.

To be honest, I'm looking beyond to the point when we also run out of fertilizers and other raw materials - we're going to have a lot of extra energy to extract them from the sea or manufacture them from water and air. And we also have a problem with nitrogen accumulation - this is the biggest worry because long term we can't keep putting nitrogen from fertilizers in the environment.

[stuntcat]

16. ah yes, we will "do fine" :)

The Family Guy watching crowd will always be cozy n safe ;)

[Gregorian]

17. 4% growth equates to 14 billion humans by 2029!

People just don't understand that those "little" percentage numbers are actually huge.

[stuntcat]

18. and we way passed the planet' limits already

lucky Americans can smile n laugh though cause we'll be kept fed and watered :) And even if 4 billion people are hungry and sick it's alright long as we can have our lives. I know this first-hand from many of the proud old consumers I live with in the comfy suburb.

[Gregorian]

19. I know

The famines in Ethiopia have been proven to be the result of global dimming. Amazing, but what comes out of our exhaust pipes has already killed. Always the poorest. Bangladesh will flood, for example.

You understand. I applaud that vision. And here I sit, wealthy by almost all standards. I'm furious today because I discovered a problem that means I'm going to get rid of my Porsche. Good lord, I feel like that tune by Janis Joplin. My friends all drive Porsche's I must make amens.

I'm furious, though. Angry at those who at least don't try to be less frivolous and flagrant. And that attitude is always held against me. As though I have no right to want people to be responsible. We could live this modern life of comfort, and not kill the planet. But those who think that they can do what they want without limit, ruin it.

Sorry about my depressing comments. I'm just disgusted more than usual today. A beautiful sunrise polluted with crappy jet contrails. BOOOO! I want a clean world back.

[social_critic]

40. Oh geez, I didn't mean population growth, i meant economic growth

The two aren't the same. We are discussing exponential economic growth, not population growth. As far as I'm concerned, all of you need to read about what it means when a woman has more than 2.05 children and mortality is very low.

[blindpig]

41. Energy efficiency will only increase energy usage.

See Jevon's Paradox.

http://en.wikipedia.org/wiki/Jevons_paradox

[Odin2005]

10. Good article.

[Statistical]

11. "The problem is that the basic costs of all production have risen remarkably." False

Productivity gains have made production cheaper now than at any point in human history.

Edit: DU doesn't like first image. Here is a link to it:
http://www.frbsf.org/csip/data/charts/chart17b.cfm



The average worker in the US produces over 3x the output of a worker in 1947. A large problem is that wages haven't kept up with productivity so while the system gets more and more efficient those gains flow to the top.

Another major problem is that productivity is growing faster than demand. It simply takes less workers to produce the same amount of goods.

[DCBob]

12. I think it all boils down to oil..

The world is "rich" because of "cheap" oil. As oil gets more scarce the world economy and the world's "wealth" will inevitably decline.

[Astrad]

15. How does he know?

He doesn't really provide any facts for his assertions. It's a meta argument about 'systems' that's highly theoretical. Doesn't mean it's not valid but doesn't mean it is either. He writes from some omniscient viewpoint but in the end he's just a well off guy in the West nervous that some of his cookies might be taken away. Much of the world has never had cookies and some of them are getting some now. Some might call that progress.

[Initech]

20. The only way to win is to devalue the rich's currency.

[FreeJoe]

21. Yet another end of civilization prediction

My entire life I have heard people predicting the end of our civilization. Nuclear war, environmental catastrophe, overpopulation, collapsing birth rates, out of control crime, Japan, China, immigrants. If I had a dollar for every time I heard someone predict the end of civilization, I'd be rich.

Sometimes the predictions are right. I'm sure someone on Easter Island said, "Dude, maybe we shouldn't cut down ALL the trees." But most of the time they are completely wrong.

My advice is not to panic or bury your head in the sand. Work on each specific problem and make it better. We'll probably be fine for a long time to come.

[Terry in Austin]

34. Not so much

I suspect that Wallerstein would actually agree with you that we'll probably be fine for a long time to come.

Wallerstein is a scholar and a pretty astute analyst of historical cycles, particularly the political and economic. He just happens to note that cycles begin and cycles end. As an example, the end of medieval civilization came around 1500, but it wasn't "the end of civilization" per se.

Rather, it was simply the start of the modern era, according to his analysis, characterized by the rise of banking, nation-states as we know them today, and mobile international capital that is so essential to them.

His prediction is basically that we're about due for one of these historically regular turnovers, and there are a lot of indications that it is more or less under way. Civilization will continue in some shape or form; we just don't know what it is yet.

[Imagevision]

22. No I don't believe we'll ever have what we experienced in the 80's ever again...

[Xenotime]

23. A single global currency would solve this..

All money pooled into one global bank.

[social_critic]

26. Won't work

Countries need the ability to float their currency

[BOG PERSON]

30. yeah, that really worked out for the eurozone didn't it

[Imagevision]

24. Plus this "new world order" crap is already in play...

[Manifestor_of_Light]

25. Rudolf elmer says it is the bankers' fault.

Rudolf Elmer gave Julian Assange 2 CDs full of 2,000 customers of his former bank employer, Julius baer, information about accounts in the Cayman Islands.
he said that 13 trillion dollars is out of the flow of taxation and commerce because of tax shelters.
They were going to charge him with forging information in Switzerland.
That was Wednesday, yesterday.
All the transactions were in the Cayman Islands.
he got 9 months' probation.

I think this is a very important point -- global collapse because of tax shelters.

[Tierra_y_Libertad]

31. There's a lot to be said for "Workers of the WORLD Unite!"

[social_critic]

35. marxist slogan, won't work either

I think there's more to be said for: workers of the world make sure you get to vote in free and fair elections, and elect politicians who care for the long term good of the nation.

[Hannah Bell]

36. won't work either.

[BOG PERSON]

42. "workers of the world make sure you get to vote in free and fair elections, and elect politicians

who care for the long term good of the nation!!" — that is super-catchy and motivational, dude.

[Fire Walk With Me]

33. India's economy was growing some 300% each year, and China have yet to tap their

industrial power. The world economy will indeed continue changing.