Where’s the endpoint?
The Financial Times well documents the decayed state of the world system today in an article subtitled “Fears persist the jobs crisis cannot be fixed”. Here’s a few excerpts:
the middle-skilled jobs that once formed the ballast of the world’s wealthiest middle class are disappearing. They are being supplanted by relatively low-skilled (and low-paid) jobs that cannot be replaced either by new technology or by offshoring – such as home nursing and landscape gardening. Jobs are also being created for the highly skilled, notably in science, engineering and management. For the remainder of the workforce, including college graduates, it is both increasingly hard to find a secure job and tougher for those who do find jobs to be paid in line with inflation.
“I know companies that employ senior engineers whose only job is to find ways to reduce the headcount,” says Carl Camden, chief executive of Kelly Services, a booming staffing agency based in Michigan. “The name of the game everywhere is to reduce permanent headcount and we are still only at the early stages of this trend.”
Of the five occupations forecast by the Bureau of Labor Statistics to be the fastest growing between now and 2018, none requires a degree. These are registered nurses, “home health aides”, customer service representatives, food preparation workers and “personal home care aides”.
…whatever jobs the US is able to create are in the least efficient sectors – the types that neither computers nor China have yet found a way of eliminating. That trend is starting to lap at the feet of more highly educated American workers. And, as the shift continues, higher-paying jobs are also increasingly at risk…
One doesn’t need much of an imagination to see where this is headed. Unless interrupted by popular protest, massive government intervention, fascism, or war, this seems to be our path:
1) Wages decline due to ever advancing technology and outsourcing to low labor cost areas.
2) Unemployment increases. The term under-employment has declining meaning as ever more become “under-employed”.
3) Profit levels can’t be sustained due to declining purchasing power and declining profitable investment opportunities. Prices and profits fall.
4) Stock market values decline and interest rates hover around zero.
5) Real estate values decline.
6) Banks are increasingly unstable due to rising defaults.
7) Government deficits increase due to declining tax base and rising social expenditures. [Rising deficits are seen as a danger within the existing paradigm and pressures to reduce benefits increase.]*
8) Loop back to 1)
This resembles a black hole collapse. Where’s the endpoint? What finally stops the collapse? For “first world” countries, it would seem only when living standards equalize with the “third world” and when “middle class” incomes equalize with the “working class”. A classless society would then face its owners. Of course it won’t get this far and the question of what will stop it is indeterminate. Our current rulers though, are systemically incapable of stopping the collapse and are little more than spectators. As Peter Orszag, speaking for the establishment, tells us at the conclusion of the article: “It is not clear what, if anything, could (transform the situation for the middle class).” Nothing within the logic of capitalism.
* 12/15 I added this today to help clarify my point.
Comments on Inequality 
#7 counters the others. It arises because of automatic stabilizers. The institutions of the USA, the residue of the New Deal & the Great Society and a workable monetary system are still strong enough that they could return the USA to what passed for full employment in the last 3 or 4 decades – the “Great Moderation” = “Great Stagnation”. Hence the importance of deficit terrorism, in using the Great Recession to tightening the predator class’s stranglehold on everyone else, no matter how much it impoverishes the world. Usually government spending in the USA is highly biased towards gifts of money to the rich for parasitical, destructive pursuits. In a recession, these residues make this a bit less true.
It is more like orbiting around a black hole or other gravitating object than a collapse. Deficit spending is like fuel expended to get to a higher orbit. Elites want to be as close as possible to the black hole. Doing nothing would avoid collapse, in the USA – unlike in Europe, where the design of the Euro forces the collapse, forces the spaceship to be pointed straight toward the black hole, where some kind of action is necessary to avoid the collapse.
But there is no reason at all to not have full employment, to not have a higher orbit. The point of MMT is to have a JG using #7 that will prevent #1 & #2, that will use the fuel most wisely to achieve a higher orbit, rather than randomly, or by bribing the crazy people who want to go into the black hole as was the case with old “Keynesianism”. And there is no reason to not make the full employment JG wage as high in real terms as possible, which in the USA would be substantially higher than usually proposed imho.
Saying that massive government intervention is necessary misses a point. A monetary economy is a type of command economy. We have massive government intervention already – gross overtaxation, enormous welfare for the rich, particularly the useless, predatory & destructive rich, opposed to those who have actually helped create real wealth. Taxation, austerity, misery & poverty for the poor and the dying middle class. What is necessary is to redirect this massive government intervention in the opposite way from the moronic mainstream economics recommendations – no more welfare for predators while attacking & robbing everyone else – by Social Security, Medicare, social spending cuts. For the USA new programs like the JG & real socialized (= cheaper & more effective) medicine – the more Stalinist & the less the private sector has to do with it the better – would be the most urgent & socially profitable.
Hi Calgacus,
I don’t believe existing safety net programs in the US would be sufficient to stop the spiral and doing nothing would seem like a sure bet collapse, keeping in mind that the world today with much greater technology and far higher foreign labor competition is very different than the 50’s and 60’s. Also, “doing nothing” means that we continue to accept that the level of deficits are important and we eventually must cut them back. So, in the existing paradigm social welfare spending is slated to be cut and can’t be counted on to prevent collapse.
Certainly agree that MMT / Functional Finance insights show that we have more than enough fuel to avoid any collapse and we have it fully within our power to actually create prosperity. Using it though would represent a massive change from the current paradigm. Agree with your last point. I should have clarified that I meant massive government intervention in support of widespread prosperity.
As eye-opening as MMT is, all it really says is that the government gets to make the money so we can’t run out and that if we make too much of it, there could be inflation. The fact that this is so obscure to most and a matter of controversy is, at this point, strange to me.
Krugman is at every opportunity speaking of space aliens and how if we were preparing to defend against them (or for them, or some such silliness), we’d have plenty of jobs funded by government deficit spending. Of course, we don’t need any space aliens. The government could simply have people move big piles of dirt around from place to place, or dig holes ala Louis Sachar.
Krugman and MMT job guarantors miss the obvious point that we don’t need jobs in order to consume the results of production. We just need some people to produce what is consumed by all. Is this “fair”? Of course not. But that’s beside the point. Our current system is to a great extent about finding a way to produce more with less, and in this we have to acknowledge some success. This should come as a great relief to the many who would rather have a relaxing day on the beach or take a few hours to write a great (or not so great) novel than toil away at hole-digging or greeting people at Wal Mart. But we just can’t bring ourselves to realize that we should work in order to produce, not in order to consume.
Good post. I’ve been re-reading Kalecki quite a bit lately, and I think your closing remark sums up the situation accurately. I don’t think that anything within the internal logic of capitalism can be depended upon to turn around a Great Recession/Depression that is preceded by collapse of the financial system. In a garden-variety business-cycle movement, the boom ends when investment has caused capacity to outstrip induced demand, and the slump ends when the collapse in investment has caused capacity utilization to rise to a point requiring further capacity-enhancing investment. Here, the automatic stabilizers definitely help to facilitate the turn around at the trough by keeping induced demand stronger than it otherwise would be despite a collapse in investment, but we can perhaps still think of a logic internal to capitalism that generates the turnaround.
But in the current situation, as with the Great Depression, the only hope of a turnaround based on the internal logic of capitalism is for those capitals that gain out of bankruptcy and the resulting centralization of capital to decide at some point that they are done centralizing and ready to lift autonomous investment expenditure. But why will they do this if there is still centralizing that can be done and consumption demand is weak? Although it could conceivably happen, it is not at all certain that there would be such a turnaround on this basis. History seems to bear this out, too. Depressions end only after a massive intervention by government, if not war.
Hello Peter,
I’ve been following your thoughts on Kalecki at your site and it’s stimulating me to re-read some of his works as well. His article on full employment is a true classic that captures the essence of the system in just a few short pages.
I’m thinking that even beyond the collapse of the financial system there’s other things that make today’s crisis different. Ever rising technology is putting tremendous unprecedented pressures on labor. Not only from outsourcing to low cost labor countries but also through the rise of ever more effective labor saving technology. Inequality is back to its levels prior to WW2 and I think it’s clear industrial capitalism can’t sustain itself for long in such a state.
I’m wondering to what extent the business cycle theory you outline is supported by history. Certainly it plays a role, but I’m thinking it’s actually pretty minor. Looking back at the last few decades, it seems the turnarounds were more about an activation of that disgusting term “animal spirits” which were directed mostly into real estate speculation or in the dot.com bubble or in merger mania. True investment spending as you mention seems to always be covered by normal depreciation allowances which still leaves the entire profit margin as a dead weight extraction from circulation.