The horizon is not so far as we can see, but as far as we can imagine

What Economy?

Ok, enough, the Dow just skirted 16K and I’m here to tell you that virtually the entire run-up of the stock market is based on one thing, and one thing only, the Fed pumping money into the markets.  That is it, that is all.  Since the market bottom the market has more than doubled, but jobs aren’t even close to recovering as a percentage of the population, Europe is still in crisis, and oil prices are still ludicrously high.

There has been a recovery in a technical sense, in a business cycle sense, and that is very very bad, because this has been the recovery?

I said that we wouldn’t see jobs recover as a percentage of the population in a generation the day I saw Obama’s stimulus plan (after seeing that he was going to bail out banks and not put people in jail) and I was right.  I will continue to be right.  The problems the economy has cannot be fixed by giving more money to banks and rich people and attempting to turn the housing market into a cash cow again.

The economy requires targeted spending, to get off oil, to break up the big banks and other oligopolies, to open up the economy to actual competition, and to increase the pricing power of labor and reduce the pricing power of employers while making sure there we do not run up against supply bottlenecks.  It does not require giving money to people who will simply use that money for more leveraged financial plays or to bury bad assets on balance sheets at mark to model (aka. mark to fantasy.)

To the extent a market works it must be regulated to be competitive, and assets must not be allowed to pile up in a few hands.  Financial profits cannot be allowed to be higher than non-financial profits, and the labor market must be tight, so that people are free to move away from jobs they hate (if your employees hate their jobs they should either be very well paid because the job is absolutely necessary, or it shouldn’t exist at all.)

The US, and indeed, the West, no longer has an economy. It has a bunch of crony capitalists sucking from the state teat or engaging in oligopolistic practices, sucking the population dry in a fashion that is going to leave us in a depression for the forseeable future, and lead to a very nasty economic collapse when real world factors (like climate change or any unforseen shock) intervene.

As for the stock market, it is in fantasy land, entirely a creature of the Federal Reserve, almost completely divorced from the actual economy.

Repeat after me, you cannot have profits higher than actual productivity increases plus inflation plus population increase.  Anything more than that is not profit, it is fraud, underinvestment in real capital or it is diverting future profits to the present.

None of those things are economic growth, and all of them will be paid for, with interest, in suffering.


How the structure of everyday life creates sociopathic corporate leaders


Stirling Update


  1. Everythings Jake

    I think one effect is that it distracts those making enough to invest in a 401K, provides a false sense of hope that things are/will be okay. We see the rage in the younger educated generation at Occupy, but there’s still a generation of middle and upper managers, mostly those who will retire in the next five years with pensions or seemingly decent buyouts.

  2. rip current

    I must have missed the part in this post about how this thievery is halted dead in its tracks. can it be stopped? we don’t think so. what is going to stop it? nothing we have on hand is going to stop it. this thievery will go on and on and on until …. what? the “people” rise up and start stringing the 1% up? puh-leeze – not gonna happen. anybody have any solutions? we are fresh out these days.

  3. par4

    Never vote for a D or an R. Other than that bear it and wait.

  4. rip current

    ran across similar thought to this post yesterday:

    “In a normal and sane world, the evidence might lead people to question whether giving all the money to rich people and boosting asset values at all cost might not be the best policy to help the economy.

    But then, we don’t live in a normal or sane world.”

  5. rip current

    5 years of QE and the distributional effects

    As we approach the fifth anniversary of the start of the first quantitative easing program, some are asking the thorny question about the so-called “distributional effects” of these unprecedented programs. Who really benefited since the first QE was launched? There is a great deal of debate on the topic, but here are a couple of facts. Financial asset valuations, particularly in the corporate sector have seen sharp increases. For example the S&P500 index total return (including dividends) has delivered 144% over the 5-year period. Those who had the resources to stay with stock investments were rewarded handsomely.

    It therefore shouldn’t be a surprise that the three rounds of quantitative easing over the past five years rewarded those who had the wherewithal to hold substantial equity investments. Everyone else on the other hand – which is the majority – was not as fortunate.

  6. Four points.

    1) Capital exists to make a profit. Capital is money invested to make more money, and so the idea that we are going to restrain capital means at some point that we are going to let capital fail. We don’t pretend, then, that capital is just going to sit there and refuse to make profits. We restrain capital.

    2) The neoliberal economy, in sum the economy post-1973, is an economy characterized by a surplus of capital, and thus an excessive and increasing demand for profit, which is in turn laid upon an economy which for four decades now has experienced gradually shrinking global growth rate. The ever-increasing financialization of the economy, enrichment of the owning class, and immiseration of the working class are the main results of such an economy.

    3) All economic policies exist as facets of the class war insofar as they all affect the balance of power between the social classes. Reagan/ Bush/ Clinton/ Obama economic policies have been ever-increasingly reactionary in this regard, as they have empowered the investor classes while immiserating the working class. This is so because the surplus of capital has increasingly expended itself upon buying the services of government officials, which are easily the most lucrative investment around. A million dollars spent on Congress can easily be made to pay for itself many, many times over.

    4) I see no reason why the class struggle should stop at a point at which “financial profits cannot be allowed to be higher than non-financial profits, and the labor market must be tight.” What happens when we reach that point? Do we all go back to watching TV and texting our friends with news of the latest antics of our pets and children until the Powers That Be destroy our lives again?

  7. The stock market was created as a vehicle for businesses to secure investment capital to create or expand their businesses. It no longer makes any pretense of fulfilling that role, as witnessed by the IPO of Facebook and Twitter. Not one penny of the capital secured by those public offerings was used to expand the business, and neither business was functionally changed in any way by the infusion of money. Every cent went into the personal enrichment of the principals.

    The stock market functions as a casino, enriching traders based on the rise and fall of numbers which have nothing to do with the actual functioning of the businesses involved, but rather with speculation as to what those numbers might gain or lose in the future. It has become so insane that speculation to the effect that the economy is faltering, which weakens the futures of the companies whose value is supposedly represented by those numbers, causes those numbers to rise instead of fall.

  8. john c. halasz

    “The economy requires targeted spending, to get off oil, to break up the big banks and other oligopolies, to open up the economy to actual competition, and to increase the pricing power of labor and reduce the pricing power of employers while making sure there we do not run up against supply bottlenecks.”

    “To the extent a market works it must be regulated to be competitive,”

    Again, you’re still hung up on reverting to classic market liberalism, as a counter to neo-liberalism, and the math that claims the a “pure” market system based on “perfect” competition induces optimal efficiency, which ignores the much greater technical efficiencies produced by concentrated, capital intensive production systems, which have long since historically superceded such market conditions and suborned them to the extent that they still exist. Simply restoring “competitive” markets, as if the end of markets were to ensure “consumer sovereignty” is a rather reactionary petit-bourgeois pipe dream. And “labor markets”, in particular, have always been more a fiction that a reality, obscuring the institutional determinants of employment opportunities and income distributions.

    Economic rents are a tricky business to sort out, but they could be defined as a kind of private tax on the rest of the economy, and like public taxation, they are not always “bad” or unjustified. There are a number of ways in which they might be reined in, without diminishing their positive contributions to productive efficiency, ranging from taxation and regulation to public ownership to cooperative or coordinationist “stakeholder” forms of ownership and control. The formation of classic industrial oligopolies are readily explained through economies of scale and scope, though technological changes might reverse some of those tendencies, (as with, e.g. new, decentralized energy generation technologies, though those would precisely require improved transmission and distribution infrastructure to become fully viable). And the explosive growth and consolidation of IT/internet technology based on network effects will likely end up as “natural” monopolies, which amount to public utilities. The idea that it would all be supported by advertizing revenues is a bit daft and price-gouging schemes simply impair economic efficiency and the benefits of innovations that the complex promises. But the rise of other forms of oligopoly in other sectors is more puzzling. Walmart in the low-margin retail sector can be explained by monopsony power over suppliers, but is nonetheless corrosive. And banking and financial concentration is puzzling from an efficiency point-of-view, as are other “flatter”, more virtual and networked forms of corporate concentration. But these are all puzzles to be worked through, not simply to be denounced based on the “solutions” of a bygone era. And, of course, even if one arrives and a differentiated mix of policy “solutions” that might do, the power to implement such policies is quite another matter.

    And then again, the rampant natural resource, environmental/ecological and population crises, together with AGW, which doesn’t subsume but merely intensifies them, will require massive technological and organizational transformations. That would involve the destruction of the value of massive amounts of incumbent forms of capital, both as physical stocks and technical know-how and as the pile of financial assets laid on top of them, while also requiring massive investments in alternative production systems and infrastructure. It’s doubtful that such a transformation could be contained and achieved within the bounds of capitalism as we have historically known it.

  9. zot23


    Is there a way to end this other than a French “Reign of Terror” style period of chaos and breakdown? That little episode was triggered not by taxes but by failure of the crops in Europe for a few seasons. Do we have to wait for climate change to wreck the corn crop in the USA, or is there some way to get through this without starvation, desperation, and the ensuing madness?

    Our parallels to France in the 1780s are way too close for comfort IMHO and that was not a pleasant transitional period.

  10. bob mcmanus

    Our parallels to France in the 1780s are way too close for comfort IMHO and that was not a pleasant transitional period.

    There is quite an understatement, remembering the the Red Terror was followed by the White Terror and then the Empire and Napoleonic Wars.

    Great post with great comments, glad to see Halasz show up here. I might only add to the original post that it isn’t only QE propping up the stock market, because hyper-inflation could be a danger, but also the assumption the expectation of capitalists that the wage class and political economy (etc?) is completely under oligarchic social control. In this way it is similar to the 1920s after the suppression and co-option of labor movements.

  11. bob mcmanus

    Sorry, a common Marxian mistake to give to much agency to capital.

    The stock market is rising because the precariat doesn’t feel it has any agency (or want it?)

    Why don’t they rise up? is the critical question.

    Post-Fordist subjectivity. Good site I discovered this week

  12. Nice article. Couldn’t agree with you more. Now that the government spin machine is kicking into high gear, it’s apparent that the people aren’t going to be told the truth because there would be consequences for that. We can’t have a little thing like the truth getting in the way of endless growth and bonuses for the banking sector. From where I stand, the bubbles are pretty damn obvious…

  13. 2013 is not like 1789, nor is it like 1929. The world economy is not currently in crisis because it is like the French economy as it was being integrated into capitalism more than two centuries ago, nor is the world economy approaching a traditional “crisis of overproduction” of an expanding capitalist system, in which the bounds of the productive economy have greatly exceeded the narrow motives of production-for-profit which define capitalism. Neither of those scenarios are recurring today in the forms in which they appeared back then.

    Rather, john c. halasz is correct if the assumption is that if the planning elites are to save an aging capitalist system from its own underproduction of nature, a genuine effort to change the energy basis of the system must be attempted. Such a move would indeed involve the destruction of quite a bit of capital. The enormous scale of energy consumption under capitalism, moreover, makes the problem of energy conversion rather daunting. Let’s see: according to the EIA statistics, the world produced 89.3624 million barrels of oil/ day in 2012, plus (if we are to take the statistics in Raupach et al. seriously) an approximately equal carbon-equivalent of coal. In our fantasy “saving capitalism” projection here, benevolent world-planners (ha ha) are going to replace most or all of that production with an energy-equivalent coming off of solar panels and wind farms. Can it be done? Will it be done? It doesn’t seem likely. What seems likely is crisis and contraction.

    My point here is that an enormous contravention of system imperatives must be attempted if the system is to be saved at all. This contravention will have to come from the working class reigniting the class struggle and creating a new economy, one that doesn’t underproduce nature as drastically as our current economy does.

  14. someofparts

    Knowing that I’m not leaving children behind will make it a little easier to face my own end when the time comes for it.

  15. RJ

    Again, you’re still hung up on reverting to classic market liberalism, as a counter to neo-liberalism, and the math that claims the a “pure” market system based on “perfect” competition induces optimal efficiency

    “Competitive” doesn’t mean “perfectly optimizing free market a la neoclassical theory,” and I highly doubt that’s what Ian is promoting.

    It can also mean that there is simply some competition and a very real chance that the major players in a given market could go under rather than be accorded too big too fail status. The market they compete in could be an oligopoly, but the oligopolists should never be “safe” from competition with each other or from new market entrants.

  16. Beleck3

    that we can “sit and talk” about how “awful” the Elites are making things says more than enough in my opinion. not that i think anyone can stop the present momentum. the die is cast, the spell is spoken.. seems to be an accurate account of what’s what.

    who can do what, and does it matter? seems to me this will lead to the inevitable crash of society, ecology, the whole ball of wax, so to speak. being able to respond is what i am always interested in. i do appreciate the conversation. the more knowledge out there is helpfull, though i do wonder. how much can i do in my particular space and time.

    not that i think the Elites care one whit about what we say or do now. seems so much like a “runaway train.” they haven’t been forced to respond so far. why would they care? unless actions have consequences and now there is no pain in all their ill gotten gains.

  17. Ian Welsh

    I believe that there are parts of the economy best served by markets. Restaurants, to use a trivial example. The key is that in those places, the markets be competitive.

    A competitive market is NOT one the government does not regulate.

    I mention this for completeness, mainly. My model for the future can’t be said to be post-war liberalism, or classic liberalism, both of those were industrial economies (or late wind/water, if you want to be persnicketty), and we should be moving out of the industrial paradigm.

  18. Timothy Gawne

    Indeed. However, I suggest a modest proposal. In the future, nobody writes a column like this unless they also suggest a real-life flesh-and-blood politician that we can actually vote for. The rich don’t care what we think as long as we continue to do nothing, such as voting for Robama or Omney.

    If the green party had gotten 15% in the last election, we would have tweedle-dee instead of tweedle-dum as president, AND there would still be real liberal democrats AND the next democratic nominee would have been more like FDR than Vlad the Impaler AND the next republican nominee might have been more like Eisenhower and less like Gordon Gecko.

    Note that people who talk pretty don’t count (think: hope and change). We need people with a demonstrated track record of actually standing up for our interests when it matters.

    I nominate Senator Jeff Sessions, whose stand against the cheap-labor massive increase in legal immigration/indentured servitude bill deserves our respect. In particular, his refusal to buckle under an onslaught of vile slander deserves notice. I also like Bernie Sanders and Dennis Kucinich – I think they tend to cave too easily under pressure but maybe if we gave them more support they would be tougher. Suggest your own favorites! Maybe we can get this to go viral or something.

    Bottom line: if we just whine about stuff while the oligarchs do another set-piece primary and give us a false choice between Hilary Clinton and Dick Cheney’s reanimated corpse, we deserve what we get.

  19. S Brennan

    “suggest a real-life flesh-and-blood politician”

    Chuck Hagel, competence, morals [Went as far as a Secretary of D could go in stopping Obama from going into Syria…and was likely the reason we did not], National and foreign policy credentials…like almost all highly decorated combat veterans, he’s got nothing to prove to nobody and a strong distaste for war. If Warren would take a VP spot, the two would know where all the bodies are buried and how to deal with the mess the last three children left behind.

  20. Tony Wikrent

    Ian writes: “We should be moving out of the industrial paradigm.” Well, the various paradigms possible, as well as what you mean by “industrial paradigm” will require some definition in your book, but I think I know where you are going. Economics today is hopelessly confused by a myriad of definitions for “capital”, “wealth” and even “money”. And economy is simply how a society organizes itself to procure, produce, and distribute the material, non-material, cultural, and spiritual goods and services required to sustain and reproduce human life at ever higher levels of happiness, security, and well-being. All else are really superfluities. Therefore, the major concern of economics should be the nurturing and deployment of the human mentation required to find and transform the natural resources required, and managing the scientific and industrial structures required.

    The progress of human technology can roughly be summarized as moving ever further down a spectrum of 1) energy density and 2) molecular and atomic scale. We have gone from the rapidly diffused light and heat of fire, learned how to concentrate fire in boilers, then in internal combustion engines, and have now nearly mastered the techniques of directing specific spectrum of light and radiation, such as we use in lasers. We can now perform surgery on genes, and arrange individual molecules. These technologies are all breathtakingly recent in the context of known human history. As Steven Kotler and Peter Diamandis outline in their book of last year, Abundance: The Future Is Better Than You Think, humanity has reached a point where our technological capabilities are growing exponentially (the best known example is Moore’s Law that the number of transistors we can put on integrated circuits doubles approximately every two years).

    The implications are enormous. Almost every economics textbook I have seen – and I have acquired quite a few and looked at many, many others for just this reason – begins with some definition or other involving the allocation of scarce resources. None that I have seen have ever discussed the overriding importance of scientific and technological development and deployment. They all, therefore, lack a sound foundation for actually assisting the human species in our task of surviving and thriving.

    We are at a history-shattering point of transition, where resources and energy will not be scarce, and will never again be scarce. Water? Only 2.7 percent of the water on the planet is non-salty and usable for human consumption. Dean Kamen has developed a water distiller that recovers 98 percent of the energy it uses and can produce 250 gallons of sterile water per day. The power source is a Stirling engine that really can burn almost anything, such as rice husks. Energy? In sub-Saharan Africa, 70 percent of people live with no access to electricity – yet one square kilometer of land soaks up from the sun the energy equivalent of 1.5 million barrels of oil. Deploy enough photovoltaics, and Africa has a huge surplus of energy it can export to Europe. University of Michigan physicist Stephen Rand discovered a way of creating magnetic fields one hundred million times stronger than what the known, accepted “laws” of physics had previously predicted was possible. The result of this research will hopefully be a way of making photovoltaics without semiconductors, reducing the cost of solar energy by not one, but several orders of magnitude.

    A truly golden age of economic prosperity and bounty is closer than most of us realize, but we are quite literally killing ourselves by clinging to ideologies that were hammered out when famine was the norm, cholera swept away millions, and the average human being could expect to live only somewhere between 30 and 40 years. We have rich pricks who have poured billions of dollars into promoting and propagating the idea that poor people deserve the hardships and indignities they suffer. We will soon be at a point that we can give every person on the planet a decent standard of living. Not the wasteful sol of the contemporary USA, but enough that no person, anywhere, for any reason, need experience hunger or cold or deprivation.

    It already is seen as a “structural problem” that our industrial systems are now so productive and efficient, that they cannot be a source of good, steady, well-paid jobs for tens or millions of people. So we’re supposed to now accept that because of this marvelous advance in human know-how and capability, tens of millions of people who can no longer find a well-paying factory job have to settle for the marginal wages of Wal-Mart or McDonalds? I refer people again to thereisnospoon on DailyKos a few days ago, The glorious, dystopian future envisioned by our libertarian masters, taking Tyler Cowen to task for welcoming a possible future in which 15% of the population “succeeds” and the rest must learn to get by on what they are provided by whatever welfare system society devises.

    We have the means at hand to eliminate poverty and privation. Will we allow some the “freedom to believe” in ideologies that prevent us from doing so? I ask in retort: what right has anyone to “trade” hundreds of millions or even billions of dollars when we have such a bright future to build, if only we summon the will to finance it?

    This is a history-shattering moment in human history, that absolutely requires a new ideology – an ideology in which all of us can share in the miraculous bounty we have all created together.

  21. Tony Wikrent

    What I’m struggling to write is: We are at the point where everything we need can be produced by only 20 to 50% of the population, depending on what country and its stage of industrial / technological development. So, we need to develop an ideology in which “structural unemployment” is not accepted as an excuse for hundreds of millions — billions, really — of people being left in poverty. We need, in fact, an ideology which does not accept poverty under any excuse.

  22. Celsius 233

    Tony Wikrent
    November 21, 2013
    We need, in fact, an ideology which does not accept poverty under any excuse.
    I like your closing thoughts and wholeheartedly agree. I am not optimistic, if only because our politicians are psychopathic pariahs.

    On another note; 3D printing will change everything regarding manufacturing. We’re at the Wright Brothers stage now; it will be interesting to see what “we” do with this revolutionary process…

  23. Tony Wikrent

    Celsius 233 mentions 3D printing. One of the most exciting developments Kotler and Diamandis discuss is the work of tissue-engineer Anthony Atala at Wake Forest University Medical Center, who led a team that modified a desktop laser printer to print with each pass one layer of stem-cell based specific tissue cells and were able to “print” a mini-kidney in a few hours. They don’t write how long the mini-kidney lived, but did mention that the organ was secreting a urine-like substance.

  24. Ian Welsh

    Yes, Tony, this is why Stirling and I have long said that we need to move things like energy over to a capital basis. Once we do so, there is no excuse for not having prosperity.

    But there are a lot of practical ideological details necessary to get there, the technology alone is not sufficient. Even with industrial technology we could have been working 20 hours a week and living better than we are now, and we didn’t, so the question is not just technological.

  25. Celsius 233

    Part of the problem is we’ve never gotten past a slave mentality. We are raised to believe “work/employment” is somehow next to godliness.
    I never understood the “work ethic” and would always have preferred not to work. The way I dealt with that was to always pursue the things I was curious about, which would also pay a living wage. Being a curious sort that led me far ans wide. Money was never my first consideration and that remains so to this day. I consider myself a very lucky man.

  26. S Brennan

    “the question is not just technological.”

    Right Ian. The solutions are out there, they are not costly, nor particularly difficult. But “our rulers” are people of greed, capable of few intellectual, moral or even physical endeavors…and they are threatened by changing paradigms that can not be harnessed to their benefit.

  27. S Brennan

    Ian, mainstream media alert, Bloomberg is edging off the reservation:

  28. Formerly T-Bear

    john c. halasz November 20, 2013

    One of the few intelligible remarks found in these tracts not based upon emotional propaganda. One of the interesting comments made by John Maynard Keynes in his biography of Professor Jevons was the wide array of characteristics and qualities required to produce enlightening economic thought. Although genius was not required, having broad-based knowledge applied to economics did produce genius. This seems to be a quality your statements imply.

    Complete befuddlement might be understatement for the present state of economic discourse, so off the rails has the economic system become. The definitions needed for discourse are contaminated with ideological garbage to the point that the required words are no longer able to carry a clean meaning, the Augean stables housing these needs be cleaned. One method might be returning to the point where the state of the discipline was last operative and coherent. My opinion that place was when JM Keynes departed as his observations, at the time, were the most accurately recorded. The economic model discerned at that time records economic realities, from that base it is possible to discern the changes transpiring since, and just maybe make out the changes that model has undergone. If one does not know where one was, it is impossible to know where one is, or to see where one is going; this is as life in a fog appears and without accurate and trustworthy instruments to navigate with, shipwreck is the likely outcome, and all lives lost.

    Your comments on economic rents are interesting. I’m of the opinion that there are two separate concepts at work here, both using the same noun. The first rent would be that of core or basic economics: Rent is the economic income returned to land e.g. lumber or fuel is the income from (forested) land, crops are income from (cultivated) land, etc. Economic income is used to satisfy economic needs, wants and desires. The other economic incomes are: Wages from labour, Interest from capital and Profit from entrepreneurship. When market monopolies distort the market, monopoly also distorts these economic incomes as well. The second rent describes the distortions of monopoly upon the economy. More appropriately extortion rents extracting unearned income from the economic market would suffice as a definition. Until that is sorted, public discourse remains in obfuscation. Monopolistic sharks dwell in muddied waters, they are seldom seen until the very end by their victims, at which time it is too late.

    At the end of the day, the study of economics is the study of human ecology and the superstructures which have developed upon (and attempt to promote) that ecology. Both the ecology and the superstructures have changed, are changing and will change, keep up with changes or be overwhelmed by changes. Change is the only guarantee there is; only death can put an end to change, TINA.

  29. Pelham

    Agreed except on the point about restoring competition. Real competition leads to a miserable world of tiny profit margins that reduce investment incentives and cut employment overall. Monopoly or duopoly is preferable IF companies are in the hands of and controlled by employees and the communities in which the companies operate. This provides the stability commensurate with the lifelong security that workers require to have a decent life.

  30. I have to wonder what regular contributors to Ian’s blog imagine as the mechanism by which they get control of government and use it to mold the economy to public purposes (to the extent that you all don’t want to “leave it up to the market”). What are you going to do to achieve your visions of “the economy”?

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