I wanted to commend to your attention what I found to be by far Jeffrey Snider’s best offering ever at RealClearMarkets. It describes in some detail the “Long Depression” of 1873-1878 and its relevance to today, largely eschewing the jargon of his other pieces. Typically, if you don’t know what the eurodollar is, you’re lost.
Here’s the conclusion:
Facing 2021, there are now 10 million fewer jobs in the United States, as well as almost 2 million new jobs that never happened (a number already insufficient to begin with), still more than 900 thousand weekly jobless claims indicating more destructiveness, and, in many places, an undeterred belief none of this will matter because…â€stimulus†of the same untruthful, unstable kind which has been introduced by those who don’t want to realize, or anyone else to realize, the situation for what it truly has become.
I found the piece illuminating for a personal reason. My grandfather’s childhood was during the Long Depression and I suspect the experience colored his later views in ways I can only speculate about.
I find this to be one of the most fascinating references in any blog I have ever seen. I feel a very long winded comment coming on, but for those interested in the perspective of an employee, an owner and someone who was an employee during a dark period in his industry’s history………..read on.
“In his memoirs, the future labor leader recalled the experience of a family friend whose inability to find meaningful employment had, during the cruel winter of ’76, reduced them to eating their pet canine.”
Just an offhand comment. Contra most simple minded commentary, unapologetic conservatives do not deny the need for a social safety net.
“The Society for Improving the Condition of the Poor figured that one-quarter of New York City’s labor was out of work. Similar notes were made of cities all throughout the country; the defining feature of this first true “industrial depression†was that there was no escaping from it. Regional troubles had come and gone throughout the early nation’s history, but no longer geographic constraints to spreading doom.”
Said another way, the growing pains of migration from an agrarian economy to an industrial economy had predictable effects. Softening inevitable transition costs may (may) be a legitimate function of government; encouraging and profiting from those transitions by politicians is inexcusable. Yet we do it to this day.
“Hold on, said a guy by the name of Carroll D. Wright. That figure was tossed about by “croakersâ€, those who like a future Samuel Gompers were beholden to labor agitation and therefore purposefully sought out the most beneficial means to further that cause. Wright had been made head of Massachusetts’ Bureau of Labor Statistics in 1873 after the first fellow to lead the state’s agency had unscrupulously used his position to advocate all on the one side.”
Seriously. Does any thinking person believe government statistics? When so much power and money is at stake…………fuggettaboutit.
Fools rely on foolish data. Greater fools rely on the inevitable policy prescriptions.
“The consequence was this potentially huge number of potential labor falling outside either definition; neither employed nor, in the Bureau’s estimation, “truly†unemployed. Even Wright would concede this method had intentionally understated the big picture level of misery and economic dysfunction, but he had done so under the search for what he claimed was accuracy.”
We just experienced a fraudulent election based on some of the most absurd behavioral notions and spectacular statistical anomalies one could imagine. And we believe in labor statistics?
“…with these two features there has been a constant diminishing of profits until many industries have been conducted with little or no margin to those managing them, and a great lowering of wages in general.â€
No shit. Contra popular opinion, capital is loathe to abandon the means of production. They will, if possible, operate at zero to negative return if they believe the storm can be ridden out. That labor is a co-victim is an offshoot, not a goal.
“Workers getting stuck with the short end (Keynes’ greater evil) of the stick as businesses tread water unable to ever do much better than that.”
Bullshit. Capital has no desire for treading water, or returns going negative. Sunk capital may suffer losses. New capital will be nowhere to be found. The difference here is – incomprehensible to liberals – capital is fluid. It will follow returns. Labor, because of its skill based value, is in no way shape or form as fluid. Its ability to move might be thought of as sclerotic. There are high friction costs to moving it elsewhere. Labor and labor advocates routinely shoot their own dicks off by not understanding this.
“Jay Powell and all the rest of current Economics could not possibly have said it better. Once triggered, people/economic agents naturally react to heightened risks, perceived or real.”
WTF?? Reaction to risks? Well blow me over. Regulations? Taxes? I’m stunned. I’m routinely informed that capital does not react to risk.
“Its hallmarks are, ironically, the expansion of those caught in the no man’s land Mr. Wright created back in the 19th century; the throngs of potential workers who aren’t looking for work, because there isn’t any or isn’t any which might produce a sufficient income, but otherwise would if the current condition added up to satisfactory recovery processes. A growth too small and timid, limited by the instability which naturally comes with the undercurrent monetary disease.”
We just installed a president beholden to the two most important factors here. China trade policy and unfettered immigration. The elite are oh-so-happy. The common man is oh-so-fucked. Well done, Democrats. But Orange Man Bad is gone. All hail China Joe. Normalcy.
I guess it depends on how you define your terms. Anarcho-capitalists do deny that need. Social conservatives do not. There are precious few Burkean conservatives—there have never been very many. I’m not sure what small government conservatives think. Are there many of them left in the party? A true “Trump conservative” would not have an ideological view—his or her view would be completely transactional.
I don’t think that’s exactly right. I think that capital follows the best promised returns on offer rather than the best actual returns. At least that’s the simplest explanation I can think of for the high stock valuations of Facebook, Amazon, etc. And at present the stock market accounts for a genuinely vast amount of new capital investment. Not the right term. It’s not actually investment at all. It’s speculation.
It’s actually even worse than that. This is a point I’ve been trying to make for a long time. Imagine a job that can only be filled by one person in the world. The effect of a higher offer of wages for that individual is to increase his or her wages. It doesn’t increase the supply—the job can only be filled by one person.
That model can be extended to any job in which the supply is capped in some fashion. As the amount of training time for some jobs increases that will increasingly function as a cap on supply. In other words the labor market is rapidly becoming more “sclerotic” over time.
If you take the condition of the working class as your reference point, then the US has been in steady decline (economic, military, cultural, religious…) since 1965.
Typically, an industrial depressions are the result of a financial collapse. Asset prices deflate, and therefore, fewer loans can be created. With industrialization, many assets have become intangible, and their valuation includes a “market” component.
Asset deflation decreases wealth, and intangible assets become harder to value. The amount and rate of the deflation will affect the valuation, and additional deflations will have an oversized affect. The “animal spirits” will be hibernating.
With a depression, the population cannot be supported by the reduced economy, and since all economies must be production based, the depression will last until production capacity and population consumption are re-aligned.
Government spending to alleviate the suffering can help, but because the Modern Monetary System (MMS) leverages debt to create ‘money’, it can go awry fast. During the COVID spending spree, many billionaires have acquired enough new wealth to pay for a $2,000 stimulus check for every citizen. (Somehow, the Adam Smith capitalists do not notice this.)
While government debt is a problem, overinflated asset prices and destroyed production capacity are a much bigger problem. In my opinion, a hyperdeflationary event is looming, and the result will not be pretty.
In the MMS, government debt, in and of itself, is not necessarily a problem, but it causes greater inflation for intangible asset. Intangible assets are essentially leveraged assets, and they produce nothing. (Facebook stock priced according to an assumed future sale price, nothing more.)
A much bigger problem is tangible to intangible asset ratio, and increasing government debt, increases this ratio. The usual result is that intangible (or non-productive) assets are increased, but it is possible to increase tangible (or productive) assets. Debt to support production is positive, and debt to support consumption is negative.
Since the US exports debt and imports goods, a deflationary event would cause an additional negative effect to the economy, and increasing government debt would exacerbate the problem. When there are no goods on the shelf, it does not matter how high the minimum wage or how large unemployment checks. A stimulus check cannot be used to purchase toilet paper that has not been produced, and you cannot wipe your ass with iPhone apps.
I have one quibble. During that period, there was hard money. Meaning, the capital was earned, and today, capital is created as numbers on an accounting ledger. Governmental control of accounting ledgers implies ownership, and no amount of pissing and moaning will change that.
RE: Can China’s economy grow indefinitely by lending itself money and increasing its share of total world production?
Yes. It is like an expanding universe. As long as the lending expands productive capacity relative to population consumption, the deceleration can be overcome, but if consumptive capacity grows faster, deflation will occur.
” A true “Trump conservative†would not have an ideological view—his or her view would be completely transactional.”
Correct. Since a Trump conservative would perceive someone getting government help is going to vote for Democrats they will oppose spending on a safety net. However, event that is complicated because a lot fo Trump supporters receive govt support, so they oppose govt safety net spending they think goes mostly to liberals or people who support them. This is one of the reasons they oppose spending for minorities. Some of it my be due to actual racism but most is due to not wanting to help anyone outside their own tribe who will vote them out of power and the perception is that minorities will vote for Dems.
“The difference here is – incomprehensible to liberals – capital is fluid. It will follow returns.”
No, liberals understand that in theory this is true, but we also look at how the world actually works. (You guys should try that sometime.) Dave touches on it. Capital flows to perceived returns and especially to perceived safe returns. Why do we keep repeating the same international banking crises? Why do people keep lending to Greece? Why did everyone lend to Argentina? Why did everyone sink their money into mortgages? At least part of that is because their are real people deciding where capital goes. Capital isn’t some mysterious kind of mana that automatically goes where needed. If some banker sends the money the same place everyone else is sending it, if it goes belly up history shows they probably wont get fired and there is a good chance they get bailed out AND they make a ton of money in the short term. IOW, the people making decisions about capital have their own incentives.
Steve
Years ago there was a dictum: “Nobody ever got fired for recommending IBM”. Nowadays it’s Microsoft. I suspect there is similar advice in financial circles.
TastyBits:
One of the problems is that China presently has enough productive capacity in a score of sectors to satisfy the entire world’s consumption in those sectors for the foreseeable future. They’re trying to do the same in additional sectors.
One you have that kind of productive capacity pouring more money into it won’t produce additional economic growth—just inflation and deflation.
@Dave Schuler
As usual, I decided not to hit the Submit button for my comment on your China post. It was long and getting longer, and in the end, who cares.
There are a lot of factors that are involved, and the Chinese government has a lot of control over all of them. The renminbi is only used domestically, and the financial system has limited foreign investment. So, China is mostly a closed system, and MMT+ could work in that environment.
Most (all?) of economics is based upon free-market capitalism, but China is a mix of fascism, socialism, and Sovietism with a MMS style monetary/financial system. Additionally, the yuan is only used for foreign trade. Therefore, inflation & deflation function differently.
Building additional unused production capacity is like digging unused holes, and I suspect that the Chinese system could support paying people to dig holes for much longer than we think.
The problem with the Chinese system is innovation, and innovation requires freedom. Free-market capitalism is the best system for innovation, but I do not see China adopting it any time soon.