Thursday, February 19, 2015

Marx and the Marketplace God and the End of History
Walter Libby

Foreword: By the end of history I mean that point in time where the industrial revolution has come to a successful conclusion. The industrial revolution, while creating technology that borders on the magical, is about replacing workers with machines and thus gave rise to the ideologies that center on the obvious: the relationship between supply and demand. The conservative view is that markets, if left on automatic, if left alone, no what the shocks, will self-correct and bring supply and demand into balance. On the other hand Keynesians argue that when shocks occur, like The  Great Recession,  governments must step in and reduce interest rates and increase spending to create demand sufficient to bring supply and demand back into balance. And then there is Marx where ever-advancing technology and the global spread of capitalism creates an epidemic of over-production whereby workers/consumers are laid off leading to a critical mass of unemployed and the rise of the dictatorship of proletariat.

So to sum up, you have an ideology that says do nothing, an ideology of do something, and an ideology that believes in kicking capitalist butt.

Today the global economy is slowing down prompting some serious hand wringing. And that itself puts into question the prevailing ideologies. So consider the following a thought experiment in two parts, and part I begins here:

When the communists overthrew the existing order in China they didn't capture much in the way of industrial development which eventually led to a revolutionary shift in ideology: Socialism with Chinese Characteristics.  While adhering to Marxism it was decided they would take the capitalist road to industrialization. Socialism then is the primary stage where they capture the mode of production where  the dictate is: to each according work--that precedes the advanced stage of communism where the dictate becomes from each according to ability to each according to need. So to get there they simply adopted an open-door policy.

However, when the multinationals, driven not so much for new markets, but by competition in their race to the bottom--in their quest for fewer regulations, lower taxes and cheaper labor--nestled in socialist China, adhering to Marxism, they must nestle everywhere,  they reached the bottom with a resounding thud that that changed everything.

Shifting manufacturing  to socialist China created the mother of all zero-sum games (one's gain is equally another's loss).  Offshoring manufacturing and assembly to socialist China turned it into the so-called factory to the world while leaving in their wake rising unemployment in their respective countries creating a global disconnect  between supply and demand and so to speak, killed the marketplace god; left on automatic, it self-destructed. Not only dispelling the myth that free markets self-correct, but also changed the dynamics of Marxism: it is no longer a global epidemic of overproduction; it is centralized production that leads to a critical mass of global unemployed workers, as the disconnect between supply  leads to  less global demand from China who in turn demands less from the world who in turn demands less China which leads inexorably to the collapse of the global economy. 
However, the day of reckoning was put off as the federal government borrowed to financed itself and so maintain its contribution to GNP and by events that propped up the system beginning with the boom that created jobs, paper wealth, and lot of capital gains and so a lot of capital gains taxes that led to budget surpluses. Nonetheless Clinton claimed ownership and the myth spread that rationalized Bush's tax cuts and a Republican Congress going on a spending spree.  Yet the bubble popped dispelling the myth as the economy fell into a mild recession. Yet the fear was the economy might double-dip into recession: To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

While the Fed initially lowered interest rates, it was Bush that pushed the
 Ownership Society and with it the housing bubble that created a lot demand. In the U.S. housing starts went from 1,560,000 in 2000 to a peak of 2,068,000 in 2005.
As the bubble inflated prices rose that led to a rash of cash out refinancing that financed purchases that ranged from electronic gadgets, new cars and trucks to home remodeling.

But it was the global housing boom that propped up global demand.  

And when the economic bubble popped, the global economy fell into The Great Recession.  And we were  step closer to the day of reckoning.

While the Eurozone has its problems and has forced austerity measures on its weaker members, the United States responded with  Keynesianism;  fiscal and monetary stimulus. Obama's Recovery Act and the Fed's  pushing interest rates to rock bottom stimulated demand (here and in China) that led to a modest recovery; those too discouraged to look for work (the participation rate) are not counted, giving a positive spin to the unemployment rate. However the economy is nothing to cheer about: most of the new jobs are low-wage or part-time; wages continue to stagnate; too many live from paycheck  to paycheck, receive food stamps, and go deeper in debt. Even so, the perception is one of optimism: the Fed, while patient, is thinking about raising interest rates. However, in a global economy you need to think beyond your nose. So back to China.
With the Great Recession their exports plummeted and they responded by accelerating the development of  new cities and infrastructure increasing employment domestically and globally (as they demanded more from the world the world demanded more from them) and its exports surged.  However, exports peaked and began a bumpy decline with a slight uptick as the U.S. began to recover from the Great Recession.


But why  the bumpy decline in exports? The simple answer is oil. China's rise required huge amounts of oil straining global supply  pushing up prices.

And soaring prices took money out of consumers pockets.
NYMEX Crude Oil Price History Chart


(This is a scary chart in and of itself: $140 per barrel in 2008 and rising prices as we pulled out of the recession  and that's with a lackluster Eurozone.)

Yet as prices soared they allowed producers in the U.S. to wring out tight oil from expensive to extract reserves; increasing global supply while giving a significant boost to the U.S. economy. So arguably without those investments in new cities and infrastructure, the global economy could have collapsed. And herein lies the anxiety; it's not only the collapse in oil prices, China is currently demanding less from the global commodity markets, signaling a slowdown in the development of new cities (so-called ghost cities); the mother of all housing bubbles, and when it pops, 50 million migrant workers lose their jobs as well as those in upstream and downstream industries (such as steel, cement, glass, furniture and appliances) and the service sector. But to be clear, it's not a housing bubble, there is a population restraint on the number of new cites that can be built. It is not a matter of prices or occupancy, it's a matter of limits, and when they reach those limits, China demands less from world, and world demands less from China; and so begins the journey to the tipping point. Are there any more props left? Assuming not, how does/could the global collapse play out?

In socialist China,  they turn to communism: from each according to ability, to each according need. Having captured the mode of production along with the mass production of ghost cites  and infrastructure and factoring in Africa and their waiting base in Angola, they are good to go, albeit not without some trepidation:

How does it play out in the rest of the industrialized world? Looking at the U.S, normally it would be the canaries in the stock market, reading the handwriting on wall, beginning a run on the stock market that leads to panic selling and an unprecedented crash.  However:

There are three thresholds, each of which represent different levels of decline in terms of points in the Dow Jones Industrial Average. These are computed at the beginning of each quarter to establish a specific point value for the quarter. For example, in the second quarter of 2011, threshold 1 was a drop of 1200 points, threshold 2 was 2400 points, and threshold 3 was 3600 points.
  • If threshold 2 is breached before 1 p.m., the market would close for two hours. If such a decline took place between 1 p.m. and 2 p.m., there would be a one-hour pause. The market would close for the day if stocks sank to that level after 2 p.m.
  • In the event where threshold 3 is breached, the market would close for the day, regardless of the time.
Reaching these numbers are unprecedented, but so are the times. The crash may be put off, but there is no stopping the panic from spreading to the general populace. Telling the people we have nothing to fear but fear itself; now's not the time to panic; cool yours jets; all good advice in regards to a run  the  equities markets, however when they look to their  cupboards and look outside and see the chaos, there is going to be a run on supermarkets. And when they empty out it's a war of all against all.

There is no revolution; there's just death and chaos. What happens next? It is either martial law or the Federal government taking total control under the provisions of the Defense Production Act of 1950.  Given the track record of our leaders, martial law looks like a given.

Following World War II was the golden age of capitalism during which time democratic capitalism was the paradigm: the welfare state, unions and capitalist coexisted. It was relatively good times, the American dream was alive; all due to the global demand as the world rebuilt after World War II.  Yet as Japan and Germany (along with the rise of Asian Tigers) rebuilt their nations, they emerged as formidable competitors, and the dream began to fade.

Workers produced much more, but typical workers’ pay lagged far behind: Disconnect between productivity and typical worker’s compensation, 1948–2013
In 1973 wages entered an era of stagnation. Beginning in 1976, America began running continuous and increasing trade deficits, followed by an ever-increasing national debt making up for lost revenues.

A tough time for the nation and even tougher time for President Carter, an oil shock, the Fed raising interest rates and so stagnation and an all time high in the misery index, prompted Reagan to ask: are you better off than you were four years ago. So without even thinking, they elected Ronald Reagan in a landside and the Senate when Republican for the  first time since 1952.

Reagan, in his augural address made it abundantly clear: “In this present crisis, government is not the solution to our problem, government IS the problem. It isn't so much that liberals are ignorant, it's just that they know so much that isn't so.”  

So it's no surprise their reaction to the unfolding crisis was to become reactionary.

Under Reagan the assault against unions and the Federal government  (the quest for lower corporate taxes and fewer regulations). Never mind that sharing the wealth creates demand and whatever government takes in, it equally puts out in demand and underwrites those that whine, moan, and complain the most. Nonetheless Reagan set the nation on a path (and a mindset) where an unfettered marketplace would provide the solution.

That led  to NAFTA and that great sucking sound. And what hope there was for some practical solution ended with the Clinton Administration.

In his 1996 State of the Union Address, Clinton told Nation: "The era of big government is over." While that's true--the revenues are not coming in to support it--it was Clinton's becoming a Third Way Democrat embracing neoliberalism and deregulation (signing into law the repeal of the Glass-Steagall Act) and paving the way for socialist China into the World Trade Organization; in effect, he threw in the towel.   Our faith and fate was now firmly in the hands of the marketplace god and the bourgeoisie were firmly back in power.  There were no barriers to trade, no barriers to multinationals, and no barriers for communist China.

Even so, with The Great Recession Republicans responded by becoming even  more reactionary with the rise of Tea Party. That the Republican brand gathers such a following is not unexpected. Conservatives, by their nature, are not critical thinkers; and it is their strength as they attract a motely group of like-minded. And despite their disparate views, their intolerance, mean spiritedness, Obama bashing, their critical flaw is that they support and joined  a class that long ago surrendered their freedom to the will of the marketplace. At a time of great national risk they became the party of obstructionism. Add their denial of global warming and peak oil (a view updated, I would think to include peak fracking), that's contrary to what the military thinks; they're out.

On the other hand Obama's Recovery Act (a semblance of freedom), along with promoting another trade agreement, Obama only intends to get the machine humming again,  ultimately he's relying on the marketplace to produce the best of all possible worlds. We are at risk and both remain  chained to their ideologies.
So all things considered we can assume the rise of a military dictatorship. First, they calm the chaos by assuring the nation with a clear and distinct message: Their first priority is getting food back on their tables (even it is MRE's). At the same time working to get utilities back on line, getting money in your pocket by the taking  over the Treasury (printing press) insuring health care, education, Social Security and unemployment benefits, so you can pay for your food, rent, utilities. Having control of the purse strings, and you, they then set about reindustrializing the nation and securing our energy future while combating global warming with renewable energy; notably through the subsidizing of algae as a biofuel weaning the nation off of oil, natural gas and coal.   The military is your big brother now, you got to love him, he saved your ass. As far as saving democracy...  ?

Yet, here's what they won't say: global supply chains from food to oil are broken; nothing moves. Yet all eyes turn  to the Middle East and its vast reserves of oil. What prevails is a policy of if I can't have, you can't have it; a nuclear scorched earth  policy that turns the Middle East into a nuclear wasteland. All militaries then retreat back into their nuclear fortresses where they are already in their versions of  DEFCON I; cocked pistol;  don't mess with us. Don't think about a cyber-attack, a biological attack, a nuclear electromagnetic pulse denotation thinking you can follow it up with a full scale  nuclear attack., don't think about because the dead hand switch is on...  and it gets worse: there's no more football.
What can you do? Minimize the chaos, become a prepper. I don't mean running for the hills type of survivalist, but the home survivalist; stockpiling food, water along with general preparation. If you choose to stockpile bullets (thank you NRA), just remember to save one for yourself. And while you are preparing, so are the wealthy.  But they have to wonder if those that protect them,  really need them.

Of course is this is as optimistic scenario. It may be that their primary mission is to maintain  the military/industrial complex, those that can't play a supporting role, are superfluous.

In conclusion:  it is what is... until it isn't.

Part II The  End Point and the  End Game

The Road To Freedom

In the realm of the ideal:  Someday all nations will be powered by renewable energy, produce their own consumer goods in fully automated factories, grow their own food in year-round indoor farms and recycle everything that should be. And it is a given that as nations industrialize and urbanize their populations stabilize (currently industrialized nations populations have stabilized posing a problem in that it leads to economic stagnation and so have adopted (outside of Japan) immigration policies that is a solution and a problem as they increase demand while increasing resentment) so following that trend future global population growth will stabilize.

The net effect is that the global economy--the interdependence of nations--is no more; nations are now economically self-reliant and sustainable thus solving the economic problem.

Sustainable in that nations consume no more than they replace. More accurately, it is nations composed of sustainable cities that provide their own energy, grow their own food, and recycle back to their own manufacturing plants. What is not feasible locally is either produced at the regional or national level.

But it is economic self-reliance that is the key to prosperity. Since their currencies are no longer tied to a global economy, they are free use their monetary printing presses as they choose.

Using the United States as an example, the Treasury, while still underwriting (via the printing press) the Federal Reserve (and so commercial banks), now underwrites the Federal government (and so the welfare of the nation). Their are no longer any federal taxes. The Treasury now funds Social Security, healthcare, and education. (Money piles up in meaningless money bins here just as it does for todays'  billionaires.

The marketplace goes about its business; all are still rewarded in relation to what they put in the pot, and people, depending on their ability to entertain themselves are generally happy.  Life is good.

This scenario is kept simple and put forward for two reasons. One, while simple, it is profound. This is the end of history: the end of the industrial revolution bringing with it the end of ideological conflict, the global struggle for markets, resources, wars, and environmental degradation. However getting there is a problem: the global  economy is unbalanced and wobbling on its axis and that is setting off alarm  bells both within the U.S. Treasury and the IMF. Their message is we have to do more, more consumption from those that can and more monetary and fiscal stimulus from those that can't.

What I'm hearing is that the self-balancing ideologies, market forces and Keynesianism, have been pretty much kicked to the curb by history.

But if you continue to think those terms, when you think about it, that means rebalancing manufacturing, and that leads back to the absurdity of over-production. So thinking about it means actually thinking about it. And thinking about means thinking about self-sufficiency. And that is not going to happen under current ideological regime; whether it be the invisible hand of the marketplace or the visible hand of governments.
Ergo, while reason puts forward these balancing ideologies-- and they exist because people choose to follow them--they are theoretical. Fine in theory, up until that point that history proves them wrong. However, in the philosophical realm there is an alternative: practical reason. It is nothing more than doing what is it necessary.

While the marketplace and government still a play role, here, we are the masters of our fate; we are the captains of our soul; through imagination, we, consciously, coherently, and purposely meet the challenges that are the consequence of our being. This is the end game.

Can't say this is a new idea, but it is an idea that runs counter to the prevailing ideology: national treasuries are going to have power up their printing presses to subsidize the necessary steps to achieve the end point.

The first step is obvious: replacing oil with renewable resources. An example is algae fuel. Subsidizing its development--while primarily relying on domestic resources to the degree and to the point (price) necessary to meet the demands of the nation. What follows in a decrease greenhouse gases, an increase in employment and an increase in global demand for consumer goods.

And as long you're relying on your resources, you can think about the degree you can subsidize the factors of production. And while you're thinking about that, think about this: California is in the midst of four drought and their reservoirs may run dry in a year or so. And California is too big to fail.

And what about those that only think about money. They might think about using it or losing it. And I'm sure that it's dawning on them that socialist China is getting to the point where they don't need no stinking capitalists.   Multinationals are feeling a earnings pinch that is only going to become more painful as global growth continues to contract and the dollar strengthens.  So too is dawning on them that there is no place like home.

As the affected developed nations reindustrialize and push the envelope on automation, on their way to self-sufficiency, along with nations with surpluses, the new markets will be the developing and undeveloped nations. The developing and underdeveloped  countries are not only new markets for consumer goods, they are in the market for the mode of production. They export resources and we export a fishing pole. No matter how global competition plays out, it will turn out for best.

It there are problems  here, the degree they power up their printing presses or the amount of foreign direct investment required, currency manipulation, the creation of currency zones where applicable, the short answer is we need another Bretton Woods that turns to the practical side.

As an idealist my take of self-interest rightly understood is this: that we are part of a whole, that we are all at risk, and by working together we can get to the end of history without ending all history.  

That said, it is in no small way that I'm channeling Alexis de Tocqueville, who, while observing Democracy In America concluded by saying this:

For myself, who now look back from this extreme limit of my task, and discover from afar, but at once, the various objects which have attracted my more attentive investigation upon my way, I am full of apprehensions and of hopes. I perceive mighty dangers which it is possible to ward off—mighty evils which may be avoided or alleviated; and I cling with a firmer hold to the belief, that for democratic nations to be virtuous and prosperous they require but to will it. I am aware that many of my contemporaries maintain that nations are never their own masters here below, and that they necessarily obey some insurmountable and unintelligent power, arising from anterior events, from their race, or from the soil and climate of their country. Such principles are false and cowardly; such principles can never produce aught but feeble men and pusillanimous nations. Providence has not created mankind entirely independent or entirely free. It is true that around every man a fatal circle is traced, beyond which he cannot pass; but within the wide verge of that circle he is powerful and free: as it is with man, so with communities. The nations of our time cannot prevent the conditions of men from becoming equal; but it depends upon themselves whether the principle of equality is to lead them to servitude or freedom, to knowledge or barbarism, to prosperity or to wretchedness.