Saving capitalism from Donald Trump and the extreme left

The imminent triumph of Donald Trump as the Republican candidate in the upcoming US presidential election is really worrying mainstream economists. Adair Turner was head of the UK’s financial regulation authority where he was a great success in stopping UK banks engaging in reckless speculation (joke!). He is a former vice-chairman of Merrill Lynch Europe and lectures at the London School of Economics.

He has now published a book, Between Debt and the Devil, in which he argues that to get the global economy going, central banks and governments must opt for ‘helicopter money’ i.e. central banks should credit every household bank account with several thousand dollars, euros or pounds, so that they can directly spend the cash and restore aggregate demand, boost output and encourage companies to invest for higher growth.

You can read his basic arguments and proposals here from a paper he presented last November at a special IMF conference in Washington.  IMF- The Case For Monetary Finance – Adair Turner IMF Jacques Polak Nov 2015.pdf

I have discussed before the nature of helicopter money and its likely success in meeting Adair Turner’s aspirations – not much is the short answer. But nevertheless, action is needed by the ruling economic authorities, says Turner, because political extremism, as represented by Trump and other extreme left and right parties in Europe is an “inevitable consequence of a breakdown in capitalism”. At a conference on market economies in London, Turner said “I think it’s a huge issue for those of us who believe in a free-market economy and that free-market capitalism delivers for everybody. The blunt fact is that it is breaking down.” He did not say exactly when it ever worked for the majority.

He pointed out that wage-earners on the lower end of the scale “have seen no increase in the US for 25-30 years” and in the Eurozone, wages “are significantly below where they were before the 2008 financial crisis”, he added. This was the driver of the loss of votes for the acceptable centre parties of capitalism in the major economies (and the rise of the ‘no vote’ party – I would add).

Real US wages

Capitalism’s failure to recover in the ‘normal’ way after the global slump of 2009 has led to a weakening of sensible rational mainstream policies. And “these things can become circular, and there’s a process of political uncertainty that creates worries about financial risk which leads to lower levels of investment,” Turner said. “The Trump development is the inevitable consequence of a system” that used to provide benefits for everyone (except that it has not for two generations in the US), but that doesn’t any more.

Keynesian Mark Thoma is a macroeconomist and econometrician and a Professor of Economics at the Department of Economics of the University of Oregon. Thoma is best known as a regular columnist for The Fiscal Times through his blog “Economist’s View”, which Paul Krugman called “the best place by far to keep up with the latest in economic discourse”.

Thoma is also worried. He reckons that “Capitalism is the best economic system yet invented for producing economic growth and satisfying the diverse desires of millions and millions of people. The key to its success is the ability to respond quickly to changes in economic conditions.” But it seems that capitalism comes with a cost: namely although the capitalist economic system is great, its politicians are not: “the failure of our political system to protect the people who pay the price of capitalism’s dynamism, a failure that has fuelled the economic insecurity, that’s helping the rise of Donald Trump and Bernie Sanders.”

You see, according to Thoma, capitalism allows new technology to thrive, but such technology is disruptive to many “it produces winners and losers. When new technology is adopted, some people who did nothing worse than pick the wrong industry to work in will lose their jobs, while others will see their incomes rise, sometimes spectacularly if the new technology serves an important, unfilled need.”

And globalization, although good, has also been disruptive. “Opening markets to international trade also produces winners and losers as markets adjust to the specialization of production across countries. International trade benefits consumers by making cheaper goods available, but it hurts people employed in industries producing goods that can be made at lower cost in other countries.”

Usually, Thoma reckons, the gains from new technology, free trade and global capital flows outweigh any losses for the majority (he does not show why), but apparently right now that is not happening. You see,“in reality, the gains haven’t been transferred from winners to losers. Instead, the gains have gone largely to the winners — often those at the top of the income distribution, which is an important factor behind the increasing income inequality the U.S. has experienced in the last few decades.”

Why this could have happened Thomas does not say, but in order to save capitalism, the best economic system ever, it seems that we need to interfere with the market and the process of capitalist production itself – a contradictory conclusion. What’s the answer? Well, we need better social insurance programs to redistribute income from the rich to the worse off. But the politicians of the right in the US and elsewhere won’t back such measures; indeed, they impose even worse policies: like tax cuts for the rich and reductions in welfare for the poor and vulnerable. “The result has been ever-growing unrest, the perception (perhaps reality, Thoma?)that the system is rigged against the working class and the populist movements the country is seeing today.”

However, Thoma does not give up on the system.  If only the politicians would come to their senses. “We don’t have to abandon capitalism. Sharing the gains from America’s dynamic, flexible economy more widely won’t kill the goose that lays our golden — but unequally distributed — eggs.”  Thus the problem is not the capitalist mode of production for private profit but the distribution of that production. You could ask Professor Thoma, if the former might not lead to the latter?

It should be the aim of mainstream economists to explain to the rich and powerful that if they carry on as they are, then they will provoke more “populist upswings” (which are bad news) and future changes to the system could be “more drastic and unpredictable” (god forbid).

So the answer for the likes of Turner and Thoma is to appeal to the rich to be more reasonable or the ‘great unwashed’ could become very unreasonable. Sounds like a plan (not).

20 Responses to “Saving capitalism from Donald Trump and the extreme left”

  1. Apostolis Says:

    I think that those ideas expressed by Mark Thoma are not worth mentioning at all.

    It irritates me to read them because they are so wrong and so popular.

  2. Columbia Says:

    Does your graph from dshot suggest that wages are higher than they have been since 1980?

  3. S. Artesian Says:

    Yeah, but the graph shows just how successful the bourgeoisie have been at keeping the line on wages below its 1970s peak; which calls into question the whole “superexploitation/transfer of value/worker accomplice” theory that’s in vogue.

  4. Edgar Says:

    “but the graph shows just how successful the bourgeoisie have been at keeping the line on wages below its 1970s peak”

    So its no longer a sustained attack on the working class, rather more a keeping the working class around the same level. Although as Kiliman points out when we factor in transfers and pensions etc that make up ‘total compensation’, the picture looks even rosier.

    A Bank of England study explained what they called the decoupling of productivity from wages in 2 ways:

    A) Pensions have taken a growing share of productivity growth

    B) Rising wage inequality (differentials) between top earners and everyone else.

    This I would suggest, among a host of other factors, means the theory of super exploitation is not just an observable truth backed by empirical and historical data but theoretically correct from a Marxist point of view.

    It is interesting how the Keynesian picture relates to that of the super exploitation deniers, such as Sartesian, namely that the dropping of failed Keynesian policies led to a deterioration of the living standards of the working class in the developed nations. The facts, i would argue, do not bear this out.

    Another thing, i do not think a proactive, revolutionary class can be too fixated on wage level graphs, because by doing this the working class movement becomes reactive to the cycles of capitalism. A true revolutionary class struggle should not be too concerned whether capitalism is in the boom or bust phase. Because if we argue the revolution will come only during the bust this means that the response will be reactive and in all all likelihood the reactive working class movement will be unfit for the task in hand.

    • S. Artesian Says:

      Jeez your tedious: Wages peak in the US in 1973; they reach a low in 1995-1996. That’s a 22 year span– a sustained period of time. Wages begin to recover somewhat in 1996, and 21 years later, are below the 1973 peak, at 1968 levels. That’s a sustained attack.

      If you want to talk about “benefits,” in 1990. the US Bureau of Labor Statistics, calculates that for manufacturing workers, benefits amounted to 32% of the wage; in 2001 amounted to 31% of the wage; in 2013, 30% of the wage.

      According to the US BEA, between 1990 and 2013, the hourly wage in manufacturing grew 56%; profits in manufacturing grew 255%.

      So where did that increase in corporate profits come from? Was it “imported?”

      If so, I’ll repeat the challenge– show how that occurs in an industry– in the US coal industry; in the US petroluem and natural gas industry; in US telecommunications industry.

      In that same period the number of manufacturing workers declined by 33%.

      Those numbers are unadjusted for inflation, but all in all, the picture is hardly “rosier.”

      It wasn’t the “dropping of Keynesian policies”– but rather the liquidation of assets, the double dip recession, the decline of unions that has led to a real deterioration in the condition of the working class.

      Not supposed to happen is that, according to the “happy accomplice” theory, is it?

    • S. Artesian Says:

      I want to emphasize that the “dropping of Keynesian policies” had absolutely nothing to do with the declines in wages, as if Keynesianism, a “fiscal” policy of the state ever has anything to do with wage levels.

      What did occur was quite simply, a downturn in the rate of profit in the US, after the peak reached in around 1969. After the recession of 1970-1971, and after beating back the strike wave of 1974, the US bourgeoisie attempted to offset the decline in the rate of profit by driving down wages– a move that, in view of the 20-25% real drop in wages, might qualify in John Smith’s “super-exploitation” category. Keynesian policies had nothing to do with it as Keynesian fiscal policies were maintained throughout the Carter, Reagan, and Bush Administrations. The US govt. deficit tripled during the Reagan years.

      As wages were driven down there was also a coincident liquidation of assets, centralization, and concentration of capital. The tremendous reductions in the level of industrial employment were matched by the stripping of assets, shutdown of industrial plants, and consolidation of enterprises. Employment on US railroads, for example declined by about 35%, and the number of Class 1 railroads shrank precipitously, as did track miles. There were prior to 1977, 7 Class 1 railroads operating between Chicago, Illinois, and Council Bluffs, Iowa. Today there are 2.

      Revenue ton-miles, however,since the end of the double dip recession in 1982 have soared. The decline in the rate of profit was offset, and real freight rates in the US declined by about 1/3 in the US during the 1992-2000 period.

      Wages did recover somewhat during that period, as did the rate of profit, without however, exceeding their previous peaks.

      We now get another dip in the US ROP after 1997, a brief partial recovery to 2000, and then another dive in the 2001 recession. The bourgeoisie’s response to that recession was draconian controls on capital spending, so draconian that the replacement rate for fixed assets fell to, and at moments below, the 1:1 ratio.

      The spike in wages during the 2008-2009 recession is produced by the severe deflation that continues to grip the advanced capitalist economies, and continues to keep the real hourly wage for production workers “afloat” although still below the 1973 level AND the level of the wage, its rate, is offset by the loss of jobs.

      If you take the wages and benefits per hour paid to production workers in 1990 multiply that by the number of workers, and then do the same calculation for workers in 2013, the results are practically equivalent without even adjusting for inflation.

      Edgar thinks that a “proactive” revolutionary class can be too fixated on wage graphs? I don’t think a revolutionary class has ever been the least bit interested in wage graphs. But I also think it’s nonsense for someone who links us to a UK report that is 20 or so pages of graphs and verbiage about median wages for those categorized not by class, by relation to production, but by age, to tell anyone else what he or she should look to in developing a critical analysis of capitalism.

      • Edgar Says:

        Ok, so in the USA productivity has increased massively, wages have stayed pretty much the same. Unemployment incidentally has also been pretty steady since the 1970’s. Look at the graphs.

        US retail sales, since 1990 have increased by 158% while the US population has grown in the same period by 25%.

        And according to you during this time the rate of profit has declined and workers were under sustained attack? In other words if we look at workers and bosses in 1970 and compare that with their condition today we can see that they are both worse off. And moreover, using your logic we can say that workers in 1870 were better off than they are today (as real wages were increasing back then). You do wonder where people got the idea that they would be better off than their parents given you believe we have been in decline for 40 years. In fact it is a common belief that this generation will be the first that are materially worse off than the previous one. Which tells more of a story of a decline since the great crisis rather than a trend that can be traced back to the 1970’s.

        But I digress, if the amount of stuff workers have produced has gone up, while wages and unemployment have been relatively flat, then what has caused the decline in the rate of profit?

        And why is this graph wrong:

      • S. Artesian Says:

        First things first: The wage chart shows and sustained decline in wages for 22-23 years. Agreed?

        In the 20-21 years since wages hit their low, wages have only recovered to 1968 levels, that is below the 1973 peak. Agreed?

        Benefits have been steady at approximately 30% of the wage, so the argument that “benefits” have offset the decline in wages, making things “rosier” is just so much bullshit. Agreed?

        At the same time, the number of workers employed in industry in the US has declined by about 1/3…agreed? And the higher paid sectors– i.e. autoworkers, railroad workers, etc. have suffered the greatest losses. Agreed?

        If you agree with all that… who gives a flying f#$k about retail sales? What is that supposed to prove? The consumer price index has not declined (or at least not prior to the current deflation which has hardly been to the working class’ advantage).

        And what people believe about being better off than their parents? That’s another non-sequitur. We’re talking CLASS not people.

        I have never stated the bourgeoisie are worse off than they were 40 years ago. How did Marx put it? The decline in the rate of profit is accompanied by an increase in the mass of profits? Yeah, I think that’s it. US capitalism however has demonstrated reduced rates of growth since 1973….

        But all this is just so much a waste of time. The reality is that between 1959 and 1979, the rate of poverty in the US declined from 22% to 11% and the absolute numbers in poverty declined by 12 million people. Since 1979, the rate of poverty has increased to about 16% with absolute numbers increasing by 8 million.

        And……. according to the “super-exploitation” theory, NONE of those things should have occurred. Right? Transfer of value and “buffering” the “privileged” workers in the advanced countries and all that other verbiage, right?

        So where did those additional poor people come from? From the bourgeoisie? From the professional classes? From the people thinking they would do better than their parents? From those spending more on retail items.

        Or from workers pushed out of their jobs? Pushed into the ranks of the “working poor” by having to accept temporary employment, part-time employment, low wage employment, or no employment at all?

      • Edgar Says:

        “The wage chart shows and sustained decline in wages for 22-23 years. Agreed?”

        Not agreed

        “In the 20-21 years since wages hit their low, wages have only recovered to 1968 levels, that is below the 1973 peak. Agreed?”

        Not agreed

        “Benefits have been steady at approximately 30% of the wage, so the argument that “benefits” have offset the decline in wages, making things “rosier” is just so much bullshit. Agreed?”

        Not agreed

        “And……. according to the “super-exploitation” theory, NONE of those things should have occurred. Right? ”


        “So where did those additional poor people come from? ”


        Oh, and the question was specifically about the rate of profit in relation to rising productivity, stagnant wages and unemployment, in the context of increasing retail sales in relation to population growth.

        So why did the rate of profit fall?

        I have parked the super exploitation argument as I have you down as a super exploitation denier.

      • S. Artesian Says:

        ““The wage chart shows and sustained decline in wages for 22-23 years. Agreed?”

        Not agreed

        “In the 20-21 years since wages hit their low, wages have only recovered to 1968 levels, that is below the 1973 peak. Agreed?”

        Not agreed”

        I’ve parked the entire discussion since you are a reality-denier.

        Michael has explained in detail and repeatedly how and why the rate of profit declined, as has Kliman, whom you like to refer to for your reality-denial exercises.

      • Edgar Says:

        You still haven’t answered the question. Maybe do that hen park the discussion?

        And yes, i deny reality as you see it.

      • S. Artesian Says:

        What was it Hooper says in “Jaws”? “I refuse to waste time arguing with a man lining up to be a hot lunch”??? Think that’s right.

        I would no more waste time arguing with than I would with someone who denies the link between carbon emissions and global warming.

  5. VN Gelis Says:

    The opening of China and the relocation of manufacturing there is what the US bourgeoisie achieved killing two birds with one stone: cheap labour and non-unionisation. This was also achieved on the domestic market with relocation of firms from the North of the USA to the non-unionised South coupled with the mass importation of labour. America is bankrupt as evidenced by the bailouts of the Auto industry Obama was forced to make when he came in.

    Trump represents the wing of the US bourgeoisie that cannot continue permanent wars for conquest. They no longer have the resources or the fighting capacity…

  6. VN Gelis Says:

    With 50m US workers on food statmps about 6m losing their homes since the Wall St crash the economy is in such a good shape that profit rates must have gone up. If they aint selling shit to the domestic market they must be selling them to aliens. No other explanation. The best thing coming is that they will start selling goods to robots soon as they are automating everything. Then the profit rate will go stratospheric…

  7. SimonH Says:

    Then they’d have to give robots wages and big wages too because automated enterprises are the most productive of all.

    • S. Artesian Says:

      No necessary labor time, therefore no surplus value; therefore no profit. It would no longer be capitalism– unless other enterprises still used human labor-power; then the robot enterprises would aggrandize a portion of that surplus value, through the pricing mechanism.

  8. VN Gelis Says:

    Maybe all them workers on food stamps are generating so many profits for big business with their fat paychecks that profit rates are so great, that they are directly related to the immiserisation of the class ie the greater the poverty the greater the profit. Its a capitalist law of unintended consequences, turn everyone into paupers ie like robots with nothing to spend in order to consume and profit rates have lift off, like in Star Trek, with the added bonus they never need to come down to earth ever…

  9. Maximizing the Minimizing Says:

    Lynn Stout, Professor of Corporate & Business Law, has an interesting take on one of the possible causes of the todays problems, that the Shareholder Value Myth is destructive for not only the workers but eventually the shareholders and companies themselves:

  10. Fred Says:

    Adair Turner was made head of the FSA on the 20th September 2008. It’s dishonest to imply that he was there during the build up to the crisis and then assign him blame for failing to curtail the build up of bank leverage.

    • michael roberts Says:

      Turner may not have been at the helm during the credit bubble as was Mervyn King, another new critic of the current mess. But Turner was Director General of the CBI (Confederation of British Industry) 1995-2000. He was Vice-Chairman of Merrill Lynch Europe (2000-06) and a Non-Executive Director of a number of companies, including Standard Chartered plc (2006-08) – in other words he was one of the reckless bankers engaged in leveraging. And read Turners’ book, Just Capital – the Liberal Economy from 2001. You will find not a word about the reckless nature of modern finance capital. One reviewer of that book said that Turner stood for “macro-economic stability with low inflation, a robust domestic competition regime, and as much exposure to external competition as possible”. And “”redistributive market liberalism” (whatever that is). Turner’s current views are in hindsight and still very much pro-capitalist.

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