Tag Murphy Piece on Brenner

[oddlots]

Tell me whether this doesn't strike a chord of recognition:

"... One has therefore witnessed for the last dozen years or so the extraordinary spectacle of a world economy in which the continuation of capital accumulation has come literally to depend upon historic waves of speculation, carefully nurtured and publicly rationalized by state policy makers and regulators – first in equities between 1995 and 2000, then in housing and leveraged lending between 2000 and 2007. What is good for Goldman Sachs – no longer GM – is what is good for America.” (emphasis in the original).

If this is correct, there is no easy fix for our problems. The blowing of asset bubbles is not an unfortunate side effect of regulatory capture or Wall Street's greed. It was the only way governments could keep economic growth from falling below politically dangerous levels once traditional Keynesian methods of fiscal stimulus through deficit spending were no longer adequate to compensate for the sclerosis at the heart of the advanced capitalist economies: “worsening difficulties with profitability and capital accumulation.” Brenner labels this bubble-blowing “stock market Keynesianism” referring to deliberate measures by governments to steer credit into equity markets."

This is from a review of a new edition of Robert Brenner's Into The Eye of The Storm by R Taggart Murphy that was cited today by Yves at Naked Capitalism:

http://www.nakedcapitalism.com/2009/...urbulence.html

Taggart wrote a really interesting book called "The Weight of the Yen" that details the institutional drivers and constraints behind Japanese style capitalism. It went a long way to explaining how different capitalism could be depending on place and so dispelled some fog about the Asian miracle, at least for me.

What I like about the piece is that he is offering an elegant explanation for what we are living through: it's not that central bankers are just captives of financial elites (would that, after all, surprise anyone?), it's that the logic of the system has driven them there. In this way at least I think reading him might dispel some of the sturm and drang of the debate and focus on the underlying problems.

He also writes damn well IMHO:

"Out in the academic cemetery to which avatars of market fundamentalism thought they had consigned their intellectual and political opponents, one can hear today the unmistakable scrape of coffin lids opening. And climbing out of their graves are the bodies of those who contend that the reductionist assumptions of neo-classical/ rational choice orthodoxy are not simply inadequate but flawed in the most fundamental sense."

As for Brenner, I'm just starting to read the new intro that Taggart links to...

[due_indigence]

I like this argument, and as you say the 'bad bad banksters' refrain is getting rather old; nor does it shed much intellectual light on where we are now. Bubbles are the grotesqueries of advanced late capitalism. As EJ has pointed out, the credit facility/infrastructure that propelled this late capitalism (and masked overproduction) is dead.

It's disturbing just how fundamental the looming question really is, but:

'what next?'

[due_indigence]

Re: Tag Murphy Piece on Brenner

Yes, a brilliant analysis indeed. Marx is back after a period of abolition. The Chinese coastal elite are pledged to American consumption.

Though not in the same intellectual league, I've been plowing similar furrows. Profitability is dead. What will replace it? This is bigger even than bubbles folks. With all due respect, EJ's analysis is conceptually incomplete as he suggests that productive capitalism has 'merely' been hijacked by the FIRE economy (The implication being that capitalism can be 'rescued' from the distortive malinvestments of FIRE).

The Brenner argument is that FIRE is capitalism in its advanced stage. The FIRE excesses are not something simply to be unwound.

http://www.unlikelystories.org/ball0509.shtml

[GRG55]

Re: Tag Murphy Piece on Brenner

Yes, a brilliant analysis indeed. Marx is back after a period of abolition. The Chinese coastal elite are pledged to American consumption.

Though not in the same intellectual league, I've been plowing similar furrows. Profitability is dead. What will replace it? This is bigger even than bubbles folks. With all due respect, EJ's analysis is conceptually incomplete as he suggests that productive capitalism has 'merely' been hijacked by the FIRE economy (The implication being that capitalism can be 'rescued' from the distortive malinvestments of FIRE).

The Brenner argument is that FIRE is capitalism in its advanced stage. The FIRE excesses are not something simply to be unwound.

http://www.unlikelystories.org/ball0509.shtml

The artificial profitability of manipulated income statements, balance sheets and outsized bonuses is certainly dying...witness all the ridiculous arguments about "accounting standards" coming from the FIRE economy interests and our politicians, much like keeping a terminally ill patient alive on drugs and life support while the family works through its denial of the reality of the situation...but we had better hope that profits derived from real production of goods and services that people are willing to pay for does not permanently die.

I assume there is no argument that the FIRE economy now suffers from excess, that those excesses are influencing the productive economy, and that those excesses are unsustainable. If that be the case, then logically the excesses have to be unwound. Whether that happens over a longer period of time or in some catastrophic series of convulsive events remains to be seen.

Finally you have conveniently overlooked complete chunks of EJ's musings about what comes next. He has never said that it is a slam dunk that "capitalism" can be rescued from the distortions of FIRE. He has pointed out that if it is not, the alternatives may be less appealing, one of which may be a turn to fascism as occurred in Europe in the 1930s [he has written about the reasons he feels why that did not happen in the USA at that time].

Frankly, nobody's analysis of the future is conceptually complete...in part because we are in uncharted economic territory now.

[due_indigence]

Re: Tag Murphy Piece on Brenner

The artificial profitability of manipulated income statements, balance sheets and outsized bonuses is certainly dying...witness all the ridiculous arguments about "accounting standards" coming from the FIRE economy interests and our politicians, much like keeping a terminally ill patient alive on drugs and life support while the family works through its denial of the reality of the situation...but we had better hope that profits derived from real production of goods and services that people are willing to pay for does not permanently die.

I assume there is no argument that the FIRE economy now suffers from excess, that those excesses are influencing the productive economy, and that those excesses are unsustainable. If that be the case, then logically the excesses have to be unwound. Whether that happens over a longer period of time or in some catastrophic series of convulsive events remains to be seen.

Finally you have conveniently overlooked complete chunks of EJ's musings about what comes next. He has never said that it is a slam dunk that "capitalism" can be rescued from the distortions of FIRE. He has pointed out that if it is not, the alternatives may be less appealing, one of which may be a turn to fascism as occurred in Europe in the 1930s [he has written about the reasons he feels why that did not happen in the USA at that time].

Frankly, nobody's analysis of the future is conceptually complete...in part because we are in uncharted economic territory now.

The death of profit through the dynamics of overproduction is a Marxist trope.

If I spoke out of turn about EJ's musings, then I stand corrected. Not having read him exhaustively, I should not have postulated in such a way.

I think the military industrial complex will instigate for war (as they are doing now...look at our 'change' President doing his best Bush imitation vis a vis Afghanistan). At least wide-scale war destroys the means of production and solves the capacity underutilization impasse. Advanced capitalism's resorting to war is another Marxist trope. The credit apparatus necessary for bubble production has been destroyed as EJ has pointed out. Thus the next step (I would postulate) from productive economoy-to FIRE economy is towards a military economy/fascist state. After all that is the last 'productive' segment of the US economy. America will exploit its one remaining competitive advantage. The target must be large. War on the Persian empire assuages the Zionists and accomplishes the larger mission of creative destruction. China will then be called upon to fashion a post-WWIII Marshall Plan.

[oddlots]

Re: Tag Murphy Piece on Brenner

Regarding the "artificial profitability of manipulated income statements," here's a good piece on how Enron-like the financial sector has become:

http://www.thedailybeast.com/blogs-a...an-enron/full/

The discrepancies across the balance sheets of even individual large financial institutions are in the billions apparently.

As you say "we had better hope that profits derived from real production of goods and services that people are willing to pay for does not permanently die."

I've always assumed that the financialisation of the west's economies has happened because, for instance, it has been far more "profitable" to lease cars than to make them. Thus you have GE turned into GMAC etc... In other words, competition forces the financialisation: you can't beat-em so you might as well join 'em. Even within banking this occurs, with the imperative to improve the "efficiency of captital" forcing leverage up to the level attained by the most reckless. (That quote by one of the big CEOs in summer of 07 I think - that "we have to keep dancing while the music plays" - even gave me a pang of sympathy for the CEOs trapped in the control room of this doomsday machine.)

In this telling, the "profits" from financialisation were a chimera, a fact revealed progressively as private sector credit risk is transformed into sovereign credit risk. Basically, asset price inflation that is not based on productivity gains will require a final "greater fool." At some point we reach a "solyent green" moment when we realise that the debts cannot be backstopped even by the tax base of the world's governments put together.

This is the narrative I've assumed we're living through and the terminus point has always assumed to be us "getting back to our knitting" as EJ puts it. (I.e, returning to a balanced economy with industrial production at it's rightful place, no longer overshadowed and crowded out by the massive but ultimately illusory profits of the financiers.)

I suspect that what Brenner is saying - still reading so don't know - is that "getting back to our knitting" isn't possible under the constraints of system's logic. I can see some practical, political reasons why this would be so. The logic of eastern mercantilist policy forces them into producing even more over-capacity, further depressing profitability and "barring the exit" so to speak. (I always thought C K Liu did a good job of explaining this trap.) But I don't yet understand the fatal, internal flaw that Murphy seems to be suggesting Brenner has teased out in his work.

I don't in principle see why the system shouldn't be able to re-set in the same way that I can't see why we can't resolve the banking problem by nationalising the banks temporarily, wiping out the share and bond-holders and re-floating the re-structured entities (as the Swedes did in the early 90s.) One of the frustrations of watching the thing unfold has been the odd way that the virtues of the capitalist system seem to have been subverted wholesale. Banks are bailed out to the extent that they have failed, disdvantaging the well-run institutions which are then pimped out by the government to these same institutions in order to secure new deposits for the former to lever up. In housing the whole effort is to not allow the market to clear. Etc.

Again, as Murphy points out, the standard response has been to blame this on "regulatory capture," "wall-street greed" etc. and this explanation, while completely true, has always sat uneasily with me. It's as if we met the world's central bankers running across the village green in a panic looking over their shoulders at something approaching over the horizon... and didn't think to ask what they were running from.

[due_indigence]

Re: Tag Murphy Piece on Brenner

There's a guy in Bangalore who can do your knitting for $3.00 a day. Yes indeed, C.K. Liu is indispensable to this discussion.

One way to mitigate overproduction is Fordism. Give the workers a raise and make them a consumer class once again, as opposed to merely a subsistence class. The middle must be able to buy the sweat of its own labor.

However this does not address the structural lowest-cost subsistence producer. Ford did not have to compete against off-shore manufacturers. There is an equilibrating dynamic it seems to me as well, where the declining standard of living in the US meets 'in the middle' the rising standards of the burgeoning middle classes of India and China.

At the very least there is a microeconomic, redistributive step that can be taken by rolling executive compensation back to historical norms vis a vis workers.

New industries (nano-technology, alt-energy) also enlarge economic activity.

But I agree it is fruitless to persist in pejorative language such as 'greedy wall street bankers'. That solves nothing.