Meanwhile back at the economy

by John Quiggin on July 8, 2011

Another really bad employment report from the US Bureau of Labor Statistics. Employment has been essentially static for the last couple of months, and most of the ground gained in 2010 has been lost. Unsurprisingly, public sector job cuts are leading the way downwards, as the stimulus fades into memory and austerity proceeds at the state and local level. In this context, it’s hard to know what outcome of the current negotiations over the debt limit would be worse: unconditional surrender to Republican demands for yet more spending cuts, or a failure to pass any legislation, with consequences that remain unclear[1].It’s hard to see US unemployment falling substantially any time soon. The decline in the participation rate (it’s fallen by about 3 percentage points of the population, equal to about 5 per cent of the labor force) means that the standard measure seriously understates the severity of the problem. If employment growth were to resume, lots of people would re-enter the labor market, so that unemployment would not decline fast.

Turning to the obligatory comparison with Europe[2], the US unemployment rate is almost exactly the same as the average for the EU-15, but both these averages conceal a lot of variation. The US has higher average unemployment than the core EU economies (except France, which is slightly higher) but much lower than the peripheral economies dealing with sovereign debt crises. On the other hand, there is plenty of variation within the US, and of a truly perverse kind. Roughly speaking, the further you were, economically, geographically and socially from the scene of the financial crisis, the worse off you are doing now.

The only question now is which set of policymakers is more likely to do something utterly disastrous. The chance of anything genuinely sensible is close to zero.

Update Finally, I meant to mention that almost all of the increase in US unemployment is at durations greater than 26 weeks. Here’s a graph from the invaluable Calculated Risk. Unlike most other developed countries, long term unemployment has been quite rare in the US (partly an artifact of time limits on unemployment insurance, and partly a factor making time-limited UI sustainable), so the BLS doesn’t give any breakdown of really long-term unemployment. This is something that needs to change, as large numbers of people exhaust benefits even at the massively extended duration of 99 weeks, but nevertheless are still looking for work.

fn1. Apparently, it’s constitutionally impossible to default on the debt, and practically impossible to stop the computers sending out Social Security checks.

fn2. In this context, it looks as if 2011 will be another year in which I win my bet with Bryan Caplan that the gap between US and EU unemployment rates will be less than the gap implied by higher US rates of incarceration.

{ 86 comments }

1

Sandwichman 07.08.11 at 11:02 pm

“The only question now is which set of policymakers is more likely to do something utterly disastrous. The chance of anything genuinely sensible is close to zero.”

I’m not sure that’s the only question. The question for me is when will people outside of the policymakers’ snake pit cotton on to the dog’s breakfast of incoherent mixed metaphors these doofuses traffic in.

2

hartal 07.09.11 at 12:46 am

After his brave attack on the eighteen orthodox Marxists left in the world today–transformation problem! also there are still some petit-bourgeoisie in the world today; also don’t forget the chavs won’t ever turn off the internet porn to revolt–perhaps Professor Quiggin would take some time explain the utter inability of his dear social democracy to hold on to political power and its accommodation to rather than modification of the market when it does achieve political power.

3

bert 07.09.11 at 1:39 am

hartal, if marxism has had a problem gaining traction beyond the academy in recent times, it’s partly because for too many years it’s attracted too many people who choose to come across like you did on that thread.
I was required to read Poulantzas as an undergraduate.
They say he jumped out of a window. I think it’s entirely possible some fucker pushed him.

bq. which set of policymakers …

The Fed isn’t raising interest rates. Score one for the yanks.

4

bert 07.09.11 at 1:45 am

bq. it’s attracted too many people
Proportionally, I mean. In absolute terms, attraction rates are way down, as you concede.

5

John Quiggin 07.09.11 at 2:11 am

I didn’t get to say it before WordPress cut off comments, but thanks to the Marxism thread I’ve learned everything I ever need to about 21st century Marxism (and even more about 21st century Marxists!), enjoying myself in the process. Blogging really is fun and educational!

6

LeeEsq 07.09.11 at 2:31 am

This is all very depressing. Making it worse, there are millions of other Americans who support the Republican politicians and their destructive policy choices and millions of others who vote for them without paying much attention. The opposing viewpoints, the ones that will actually work, seem to have no effective advocate inside or outside of politics.

7

William Timberman 07.09.11 at 2:46 am

Reason not the need, JQ. One thing hartal is right about is that social democracy is a weaker reed than its advocates seem to think. It’s nicer than Marxism, yes, but the jury’s still out on whether or not it’s more effective in the long run.

Whatever Marx may have gotten wrong, one thing he did get right, I think, is that social democracy can exist only on sufferance — it has no constituency of its own apart from the well-meaning, and we should all know by now — or at least strongly suspect — that the well-meaning have their limits. The abolition movement did a quite amazing job of moving the seemingly immovable, but by 1880 or so, a traveler in the South would have been hard-pressed to see any evidence of its beneficial effects.

8

John Quiggin 07.09.11 at 3:04 am

“It’s nicer than Marxism, yes, but the jury’s still out on whether or not it’s more effective in the long run.”

Given the comparative experience of the last century, and the unlikelihood of any significant future for Marxism as a political movement I can’t agree. Even if social democrats turn out to have been defeated (which I don’t in any way concede), we will still have achieved far more good, and done far less harm, than have the inheritors of Marxism, and particularly Leninism.

9

mclaren 07.09.11 at 3:08 am

While the commenters argue about which debunked and obsolete 19th-century political philosophy we ought to espouse, no one — including the original poster — seems to contemplate the possibility that technology has moved us into an economic realm without precedent.

The problem with ridiculing “this time it’s different” arguments is that sometimes, things actually are different. The steam engine ended slavery. Southern American slaveholders basically fell back on sneering at anyone who claimed “this time it’s different” because, after all, slavery had been around for all of previous human history. How likely was it that such a basic human institution would simply wither away and disappear?

But it did. Today, capitalism has been around since the Cult of Isis created the world’s first bank (to invest the proceeds of its temple priestesses-cum-hookers). That’s a track record of thousands of years. Today, everyone believes market capitalism is such a basic human institution that it’s just inconceivable it could wither away and disappear.

But, as Bruce Sterling has pointed out, we’re rapidly moving into a world where “everything is sort of free and no one has a job.” What if the future looks like Wikipedia instead of Marxism? What if the economy of the future isn’t capitalism or socialism or Marxist collectivism, but something new and different, that we hardly even have a name for today? Something involving crowdsourced free peer production like linux?

When you look at writers like Martin Brain (“Robotic Nation”) and Martin Ford (“A Jobless Recovery — And A Jobless Future”) and Clay Shirky (“The Price of Information Has Fallen and It Can’t Get Up,”), and when you hear people like Warren Buffett pointing out that “the internet is a net negative for capitalism,” (and the internet is in the process of eating everything it touches, and it’s touching everything…so where does that leave capitalism?) you begin to ponder the possibility that market capitalism is just another phase of human history destined for the scrapheap, like hunter-gatherer society, or slavery, or the god-kings of Sumeria and Meso-America.

10

StevenAttewell 07.09.11 at 3:18 am

hartal – robust social democracy held on for about 35-40 years.

The track record for Marxist parties in non-dictatorships?

Die Linke is about 50/50 social democratic and democratic Marxist. They flat-lined from 1990-2002, but have improved considerably since. At the same time, my money would be on the Greens overtaking them.

PCF’s performance in elections dropped like a stone since 1981, and has seen no improvement since the recession began. Italian Marxist parties wish they were as strong as the French.

Etc. and etc.

William Timberman – social democracy transformed Western Europe fundamentally in ways that have yet to be undone even still. Marxist political parties – how well has their legacy stood up?

As for the constituency argument that “social democracy can exist only on sufferance—it has no constituency of its own apart from the well-meaning” is without evidence. Social democracy has a constituency, albeit one that has been in decline. Marxist political parties can’t even claim that.

11

William Timberman 07.09.11 at 3:20 am

Mclaren, there’s an awful lot of hand-waving and mumbo jumbo involved in claims like yours. Everything is sort of free and no one has a job is a consummation devoutly to be wished, and was in fact imagined decades ago, when some people — myself among them — actually believed that it might be coming soon to a theater near us. (If capitalism doesn’t need us in the factories, but could still feed us if it wanted to, all we have to do is make it want to.)

Well, God knows it didn’t turn out that way. It may be that what we’re seeing today is in fact the death throes of the last of our pernicious 18th and 19th century isms, but I don’t think even the most forward-looking bookies would give you odds on it right now.

12

StevenAttewell 07.09.11 at 3:21 am

* although I will grant the Latin American case of the last ten years. Even then, the policies in question aren’t purely Marxist even when the parties are.

13

StevenAttewell 07.09.11 at 3:27 am

mclaren – even granting the “everything is free” case, which is far too optimistic even in information technology, I don’t think the end of scarcity necessarily means either a guaranteed standard of living or full employment.

I’ve always thought that Transmetropolitan is underrated as a realistic technofuture – nanotechnology has basically eliminated scarcity, but human nature and capitalist society being what it is, we allow unemployment and poverty to continue anyway.

14

mclaren 07.09.11 at 3:28 am

Oh, and by the way: contrary to your footnote 1, the Treasury General Counsel George Madison has examined the legal issues involved and he has concluded that the U.S. Treasury is constitutionally unable to issue debt if the House of Representatives does not authorize it. See this fact check.

15

StevenAttewell 07.09.11 at 3:31 am

mclaren – That’s Madison’s position, but it’s not determinative. The basic issue is this, Congress has required that the Executive spend $X, tax #Y, and borrow $Z. Y+Z<X.

When the debt ceiling is hit, the Executive will have to break some law – so why not break the borrowing one?

16

William Timberman 07.09.11 at 3:31 am

StevenAttewell @ 10

Even still…. True enough, but the century is young. I’m on your side, and JQ’s, as far as hopes and aspirations go, but I’m far less sanguine about the permanence of what’s been achieved. Marx saw something social democrats still refuse to see, I think, and that is the dynamics of power concentration in an increasingly technological civilization. Maybe mclaren is right, and we’ll wake up one morning to find that we’ve all become butterflies overnight, but I say go have a look at an NSA or Apple data center and the amount of juice needed to keep the dreamers in the dream. Cui bono is as nasty a question today as ever it was, in my opinion, even though I’d be more than happy to be proven wrong.

17

StevenAttewell 07.09.11 at 3:32 am

* Y+Z is less than X

18

geo 07.09.11 at 3:52 am

we will still have achieved far more good, and done far less harm, than have the inheritors of Marxism, and particularly Leninism

This is beneath you, JQ. As Alasdair MacIntyre, no Marxist, wrote in After Virtue: “the barbarous despotism of the collective Tsardom which reigns in Moscow [Beijing, Hanoi, etc.] can be taken to be as irrelevant to the question of the moral substance of Marxism as the life of the Borgia pope was to that of the moral substance of Christianity.” Marx was a democrat and a humanist; Lenin was not. Marx’s historical materialism (yay!) and the labor theory of value (boo!) is one thing (well, two things); Party dictatorship is something else, wholly unrelated.

19

StevenAttewell 07.09.11 at 3:55 am

Something of an uncharitable reading, geo. Quiggan was comparing effectiveness, not morality.

20

mclaren 07.09.11 at 4:04 am

William Timberman remarks that “Everything is sort of free and no one has a job is a consummation devoutly to be wished….

Really? This could go any number of possible ways, most of them unpleasant. The most likely such future involves turning most of America into a bunch of hi-tech favelas. Housing is free because you’re living in a squat under an underpass. You queue up for free government cheese and use your laptop to surf Wikipedia. That’s not much of a life.

As for Timberman’s claim that “there’s an awful lot of hand-waving and mumbo jumbo involved in claims like [mine],” on the contrary: look at the hard numbers.

Take a look at this graph showing job growth by decade in America from the 1940s to the 2000s. Do you see a pattern there? Do you think we’re going to a middle class left in the near future? Do you think this pattern is socially and politically sustainable in a market capitalist system?

Take a look at this historical chart showing American manufacturing capacity after each recession from the 1940s to 2007. Do you see a pattern here? Do you think there’s going to be any non-military U.S. manufacturing base left after another 3 or 4 recessions? Do you think that’s socially and politically sustainable under conventional market capitalism?

Or take a look at this chart showing what’s happening to U.S. military manufacturing vs. the manufacture of durable consumer goods. Military manufacturing is going through the roof, durable goods manufacture is plummeting. You think you can sustain market capitalism with a trend like this?

And here’s a chart showing college tuition over the last 30 years comparing to the explosion in housing prices. Notice that college tuition is increasing much faster than the price of houses did during the recent housing bubble. Modern market capitalism depends on educated workers — how are we going to continue to educate workers in America with this unsustainable trend in place? Do you really think market capitalism can handle this kind of radically unsustainable trend?

And here’s a chart showing the median duration of unemployment over the last 50 years. Notice that interesting spike — it’s completely unprecedented. There’s nothing like it, unless you go back to the Great Depression…and since they didn’t keep the kinds of economic records back then we do now, we don’t even have any hard data to compare this bizarrely unprecedented trend with. Looking at this chart, a blind person could see what’s going on — jobs are getting outsourced at such a rate that once someone in America loses a job, they can’t get another one.

But I’m just doing “hand-waving” here, right?

Wrong. Economist Tim Duy is saying the same thing I am:

“…U.S. firms have no intention of adding net new capacity, planning instead to source any excess demand from overseas. This implies that the manufacturing recovery will not be a net positive to US growth. It also implies that the trade deficit will widen further and that the challenge of global imbalances will remain unresolved. The rise of Dollar assets abroad will with either force a fall in the US dollar which would then create more incentive for export and import-competing industries or, more likely, encourage the accumulation of reserve assets among foreign central banks.

“In short, I continue to worry that policymakers are ignoring the possibility that increasing reliance on external production to satisfy U.S. demand has contributed significantly to the jobless recoveries we have seen this decade. Something is very different this decade.”

Source: Tim Duy, “Anomalous Capacity Shrinkage,” FedWatch blog, 30 July 2010.

Newsweek International Edition is also saying the same thing I am:

“In the years ahead, sizable numbers of skilled, reasonably well-educated middle-income workers in service-sector jobs long considered safe from foreign trade—accounting, law, financial and risk management, health care and information technology, to name a few—could be facing layoffs or serious wage pressure as developing nations perform increasingly sophisticated offshore work.”

Source: Newsweek international edition article “Europe: The Big Squeeze,” 30 May 2010.

Explain to me how market capitalism remains viable when the median unemployment duration in America rises to 10 years. Explain to me how market capitalism remains viable when the cost of college tuition rises to $200,000 per year in 2011 dollars. Explain to me how market capitalism remains viable when computers & software & robots do all the jobs formerly taken by the 73% of non-college-educated Americans, while outsourcing and databases + expert systems (like IBM’s Watson system) do 90% of the jobs formerly taken by the 27% of college-educated Americans.

All these graphs, all these charts, all this hard economic data is “hand waving” and “mumbo jumbo”? Really?

21

Glen Tomkins 07.09.11 at 4:22 am

@14
I’m not going to put any weight whatever on statements like Madison’s that simply assert that the debt ceiling law will not be violated by this administration, until and unless they tell us how they plan to violate all the laws that legally obligate the Treasury to disburse money.

The day we hit the ceiling, that will be the choice — violate the debt ceiling law and thereby infringe Congress’s position as the sole borrowing authority for the US, or violate every law that obligates govt spending and thereby infringe Congress’s position as the sole determiner of US spending. That spending, per the Constitution, can only take place by way of public laws, and all that spending is a legal obligation once those laws are passed.

The Treasury Dept of which Madison is counsel has merely an executive function, not a decision-making, law-giving function. It just does what it is told by the law-making authority, the authority that must pass laws to either add funds to or pay them out of the Treasury, because the Constitution says that money goes in and out of the Treasury only by law. It’s great that Mr. Madison is four-square against ad libbing the bringing in of money over the debt ceiling in the absence of a rise in that ceiling, but he can’t be against that without being for his department usurping Congressional spending authority and deciding who gets paid and who doesn’t. I’m not going to believe that he and his boss have really made the choice to honor the ceiling until and unless they fill us in on exactly how they plan to usurp the spending authority, who they plan to pay, and who they plan to stiff when the crunch comes.

He and his boss have to make a choice which law they’re going to break, if you want to put it dramatically. I’m not a constitutional lawyer, and I suspect they have a less dramatic way of characterizing a situation in which a responsible party faces contradictory legal requirements, requirements that cannot be both met. I would think that what the law calls for in that circumstance is that the party in question follow whichever horn of the dilemma is closest to what a reasonable person would think was the legislative intent, since both horns of a dilemma cannot have been intended.

In this particular dilemma, can there be any question that laws obligating spending passed by both chambers, are a truer guide to intent than the refusal of one chamber of the legislature to raise the ceiling? Can there be any serious thought that the intent of the ceiling law was that, should it not be raised in the face of deficit spending that is clearly the legislative intent, witnessed by the budget the Congress just passed into law, that it act as a sort of self-destruct button for the US of A? Is it at all credible to infer that Congress intended the ceiling to trigger a sort of national bankruptcy if not raised, and then to nowhere specify the order of payment in the event of that national bankruptcy?

It would be great if Treasury could do its work on the basis of explicit instructions from Congress. There would be no room for inference in this matter if it were at all possible to observe the explicit provisions of the law on this matter. Unfortunately, those explicit instructions are self-contradictory: a budget that requires deficit spending past the debt ceiling, and a debt ceiling set too low to allow the spending legally obligated by the budget bills. Mr. Madison and his boss will have to proceed on the basis of an inference and interpretation of Congressional intent, and they will simply have no choice in that matter if the ceiling is not raised, because that failure to raise the ceiling will break the explicit scheme that is in place in law that implements the Constitution’s provisions for taking money into the Treasury, and then disbursing it.

22

John Quiggin 07.09.11 at 5:08 am

To be clear, geo and WT, I don’t blame Marx for Lenin. The whole point of my series of posts was to ask what can be learned from Marx if you regard the revolutionary project (represented almost entirely by Lenin and his successors) as a failure. I agree with geo that historical materialism is important, and largely correct, and this isn’t invalidated by Lenin and the one-party state. Similarly I agree with WT on the importance of concentrated power.

But, to spell out my earlier response, if you exclude Marxist-Leninists from consideration, Marxism hasn’t been a serious political force for a long time.

23

Aulus Gellius 07.09.11 at 5:41 am

“Today, capitalism has been around since the Cult of Isis created the world’s first bank (to invest the proceeds of its temple priestesses-cum-hookers).”

To pick up on the least important thing at issue in this discussion, as is my wont: this is very sketchy history at best. I don’t know the origin of this particular claim, but the existence of sacred prostitution anywhere, ever, is very much in doubt (it seems to have been an accusation thrown at foreign religions — but I believe it’s even been suggested that there were no such accusations, and that it’s all modern misinterpretation).

Obviously, this has vast and far-reaching implications for the world economy and the future of Marxist thought.

24

William Timberman 07.09.11 at 7:03 am

Mclaren, I think we must have passed each other in the fog. No, I don’t think that market capitalism, even gussied up with social democracy (which, as I’ve tried to explain, seems to me to be politically unsustainable in the short run, and very possibly in the long run as well) is leading, if not to a dead end, then to a massive rethink, and that under the awful pressure of the factors you cite, and others as well — global warming, Mike Davis’s automated warfare in the Planet of Slums, and so forth and so on.

I seem to have mistaken you for a New Age optimist — standing with your thumb out somewhere between Gunnar Myrdal and Jaron Lanier. My bad…and my apologies accordingly.

25

John Quiggin 07.09.11 at 7:45 am

McLaren, I’ve written a fair bit on similar themes, but I think many of the developments you mention reflect the outcomes of a particular phase in class conflict in the US, rather than a fundamental change in the nature of capitalism (though I think that is happening too). I was just going to update on unemployment duration, but it’s important to note that it was the earlier absence of long-term unemployment that was anomalous in the US, not its recent upsurge. Most other countries have experienced severe LTU during recessions.

26

Andrew F. 07.09.11 at 10:33 am

Much of this is overblown. The most recent recession, having been caused by a massive financial crisis, and the high percentage of consumers invested – in one way or another – in the asset bubble that burst, make this different. We’ll have sluggish growth while wealth is restored and debt paid down. And then things will return to normal. Small businesses will be able to borrow and invest normally. Larger businesses will ramp up.

At the moment businesses are still very concerned with sheltering against future risk, and consumers are behaving similarly. That’s unfortunate, but it’s not a sign of a structural problem with the economy.

Once the US fully emerges, the dynamic enterprise and churn of the American economy will return, and unemployment will drop back to its low rates and duration.

27

Sev 07.09.11 at 10:52 am

“Jobs Report Reinforces Parties in Deficit Talks”
http://www.nytimes.com/2011/07/09/us/politics/09fiscal.html?hpw

The headline says it all. When in a hole, keep digging. Gotta be some gold down there some place.

28

Henri Vieuxtemps 07.09.11 at 11:12 am

It’s true that marxism failed to deliver the transition to a new classless socioeconomic system; that part remains utopian. However, I agree with Geo that historical materialism has survived just fine. And it offers a good explanation of the politics of ‘social democracy’, and why it’s not a panacea.

29

Barry 07.09.11 at 11:50 am

“But, as Bruce Sterling has pointed out, we’re rapidly moving into a world where “everything is sort of free and no one has a job.” ”

As has been pointed out, education is not free – both in the actual education aspects and the credentialing aspects. Housing is not free, health care is not free. Transportation is not free, and given the actions of state and local governments, will be getting more expensive in many ways. Food is not free.

30

Random Lurker 07.09.11 at 12:21 pm

@John Quiggin 22 and also @others with similar arguments:

I think that your opposition between “marxism” on one hand and “social democracy” on the other is quite wrong, at least here in Italy: here, the PCI (italian communist pary, quite marxist and pro-soviet for a while) has been in pratice the driver of social democracy, and had an important and lasting effect on italyan politics (italian constitution has been written taking in account many commie points, for example).
For example, G. Napolitano, current president of Italy, has been in the communist party for a lot of time, but he is still liked by most voters, bot in the left and in the right.

31

Random Lurker 07.09.11 at 12:31 pm

Also, regarding “dead ideologies”, I think that we are looking to a generational phenomenon:
In Italy, “fascism” disappeared as an ideology for many years, but resurfaced recently, both under its name and with slightly different names (I think the “Lega Nord” guys are really fascists, but they don’t realize it). This happens beacause the defeat of fascism is no more a living memory.
In a similar way, today the idea of “communism” immediately brings the memory of eastern germans eager to migrate in western germany because easter germany sucks, and this has an emotional power stronger than any logical argument. But, in say 20 years, this emotional power will wane.

32

William Timberman 07.09.11 at 12:53 pm

JQ, from where I sit, social democracy does now appear to be largely an epiphenomenon, the runt of capitalism’s litter, if you like. And when for any reason the she-capitalist’s dugs start to dry up, the he-capitalist begins eyeing the runt of the litter and licking his chops, and the runt’s more robust siblings affect a profound lack of interest in what happens to the little guy, whether it’s the Brits and Polish carpenters, the Germans and Greek profligates, the French and Turks-in-general, or citizens of the U.S. and those pesky Messican campesinos.

I realize that CT, being under the stewardship of some pretty sharp academics, would prefer fewer of the cheesy metaphors, and a much larger helping of statistical evidence along the lines of The Predator State or The Shock Doctrine, but then I’m just a commenter, after all. Maybe the whole bad dream will all simply evaporate with the dawn, as Andrew F. asserts. The Chinese are still assuring us that the East is Red Sun Rises in the East. Perhaps they’ll turn out to be right after all.

33

christian_h 07.09.11 at 1:01 pm

Just to be clear, JQ is laughably wrong about the relative “effectiveness” of reformist vs. revolutionary socialism in the 20th century… mostly because it’s a hare-brained comparison of apples and oranges, as usual in anti-communist discourse. This is all the more ironic as the original post here describes the utter failure of real-existing social democracy to deal with yet another major crisis of capitalism.

34

David Kaib 07.09.11 at 1:07 pm

Andrew F. ,

The problem with that argument is that this crisis was caused by a bubble, which was created to deal with the pop of a previous bubble, and so on. We haven’t really been at “normal” since the 70s, when the link between productivity growth and wages was broken in the US and public policy was redirected to funnel money to the very top of the income / wealth scale. This in turn contributed to weakened countervailing power, and both of these developments (along with the implicit guarantee of bailouts for those at the top) led to an economy driven by speculation. There are no market mechanisms to overcome that. What is more likely, absent some significant increase in political mobilization from the left, is another bubble to paper over these problems and provide speculative profits again, temporarily. To me, the bigger barrier to changing things is figuring out how to create such a mobilization rather than what you’d do if you achieved it.

35

christian_h 07.09.11 at 1:52 pm

Okay clearly I was being very unfriendly in 33, apologies for that. Let me reformulate and say I strongly disagree with JQ’s assessment, or rather with the underlying assumption that a comparison between reformist socialism in the imperial core and revolutionary states oriented towards communism on the periphery can be made.

36

StevenAttewell 07.09.11 at 2:38 pm

mclaren at 20 – and how does that show that everything will be free?

Random Lurker at 30 – I don’t think your counter-example actually counters our thesis. The PCI went full-blown meliorist, denounced the Red Brigades, and tried to form the Historic Compromise – at this point, can we still describe this as a revolutionary Marxist party?

christian_h – given that social democratic parties were largely out of power when the recession began, how is their failure any different from the failure of revolutionary Marxist parties?

37

bianca steele 07.09.11 at 2:58 pm

geo, on something like the third page of After Virtue MacIntyre condemns Marx as an inheritor of enlightenment liberalism. If he doesn’t account Stalinism a debit to liberalism, he surely does debit the inability to defend against Stalinism to that account. He implies that Marxism may be tainted but it was right about lots of things, and it would be nice if we could retrieve and redeem the good parts and reconcile them with truth. Even ignoring the question at which point his transition out of Marxism was complete (there is lots of stuff drawing on arguments of Sartre’s that seem very Marxist), I’m not sure you’re arguing entirely in good faith.

I don’t at all see why someone in MacIntyre’s position should be presumed to reject historical materialism.

38

bianca steele 07.09.11 at 3:19 pm

@geo
Although I also don’t see many relevant differences between Marxist historical materialism and, for example, the way Charles Taylor treats culture in the first chapters of Sources of the Self. It’s not that I don’t know modern philosophers think there are important differences between idealism and materialism, for their own purposes, it simply seems to me that what is important and new (at least, to me) in what he says applies at least as well to Marxist thought as to Hegelian. And to me it is neither convincing nor (as it seems to a significant number of people, from very different backgrounds) obvious.

Historical materialism seems obvious in some important way to MacIntyre, regardless of whom he blames for it. I don’t see why it should be presumed to be important to me or to anyone other than a small set of philosophy professors, and doesn’t this suggest that it will soon disappear?

39

Myles 07.09.11 at 3:25 pm

Roughly speaking, the further you were, economically, geographically and socially from the scene of the financial crisis, the worse off you are doing now.

Well, economic crises could theoretically speed up creative destruction, and in regards to the economy of Michigan (and some other areas) it seems to have done this.

40

Watson Ladd 07.09.11 at 3:45 pm

@31: The people wanted to leave Eastern Europe is not an emotional argument. It’s a powerful argument against any social system that those whom it supposedly benefits would rather go elsewhere. The lies of the Southern plantocracy that the slaves were well treated are shown to be lies by every single escapee. That said, the transition into capital was felt by thousands of French peasants to be an assault on the natural order of things, hence the Vendee. The failure of communism was not that it collapsed, but that no one saw anything in it worth defending in 1989. The underpinnings of its legitimacy had vanished. Conversely, capitalism’s legitimation has constantly eroded, and indeed the First World War delegitimized it to the Russian people. How long will it be before at some point the legitimacy of a system where 19% of the people are locked out of an ability to legitimate their existence vanishes?

41

Random Lurker 07.09.11 at 3:55 pm

@Steven Attewell 36
The PCI went full-blown meliorist, denounced the Red Brigades, and tried to form the Historic Compromise – at this point, can we still describe this as a revolutionary Marxist party?
My point is exactly this, that there is no sharp line between “marxism” and “social democracy”. Also, I suspect that if Marx was an italian living in the ’70, he would have been a PCI intellectual and not a red brigade terrorist.

More generally about the points in the original post, I think that it is obvious that the present crisis can be solved only by strongly redistributive policies (like: employng a lot of people from the state, thus causing inflation in wages; financing this by actually printing money and not by debt; the inflation caused by this would lower the level of leverage).
This kind of redistributive policies pose a very strong political problem, and thus I can’t see how a government can implement those policies unless it has a strong mandate for wealth redistribution.

42

Random Lurker 07.09.11 at 4:10 pm

@Watson Ladd 40
It is not an emotional argument, but it is an argument that has a stronger emotional power than other arguments: for example, one could rationally argue that social democratic policies have nothing to do with the failures of the soviet system, but still the collapse of the soviet system was so spectacular that also social democratic policies had a strong setback from this.

A personal example: my younger sister is very leftish but she would never vote for a “commie” party, because she thinks that “communism” is an old ideology that is today in the dustbin of history. I, on tho opposite, always voted for parties with the hammer and sickle in the logo. A few years ago, we both tried a test found in a newspaper that confronted our opinion with opinion expressed by various italian politicians.
She happened to have a very strong coincidence of opinions (90%+) with the boss of “Rifondazione Comunista”, much higer than my score (somewere around 80%).
However, even if her opinions were very similar to those of the commies, she didn’t vote for them, because she took for granted that they were extremist nutheads.

43

StevenAttewell 07.09.11 at 4:23 pm

RandomLurker – agreed about the solution, naturally.

However, I disagree about what we’re disagreeing about. Surely, if there was no sharp line, we should see instead a range of variants between say, the Communist Party of the USSR at one end and the Swedish SAP on the other.

Rather, what we’re seeing is a more polarized system in which parties flip or split one way or another instead of existing comfortably in the middle.

44

Random Lurker 07.09.11 at 4:48 pm

@StevenAttewell

IMHO, this big split is the consequence of the cold war for first, and of the fall of the USSR later:
During the cold war, in many countries, most of all in the USA, communism/marxism was the ideology of the external enemy. As a consequence I think many leftish people took great pain to show that they were not part of the enemies, and that there was a big difference between meliorist left and the revolutionary left.
After the fall of the USSR, leftish people in many countries took great pain to show that they were not like Stalin, and to do this, they actually endorsed rather “pro-market” positions. Thus the idea of a “non-revolutionary” marxism today seems like an oximoron, while in reality many meliorist parties in the west actually had marxist roots.
Also, related to this but also to the original post, the big problem of “meliorist” leftish parties is that they bought in “keynesianism” as an economic theory. I believe that the reason leftish people like keynesianism is that it gives them an excuse to ramp on state expenditures. But really keynesianism is just another form of trickle down, so that at some point rightish guys learn the trick and ask for tax breaks as a form of stimulus.

45

StevenAttewell 07.09.11 at 5:08 pm

RandomLurker – but the same process was going on before the Cold War, in socialist parties across Europe, over democracy vs. revolution, ministerialism, and the exact economic policies you describe at 41. We didn’t see great variation, rather, we saw splits and flips.

And I really disagree with your description of Keynesianism.

46

hartal 07.09.11 at 6:03 pm

G Moschonas In The Name of Social Democracy
Ashley Lavelle The Death of Social Democracy.

Haven’t read the latter; from what I remember of the former, it charts SD policy–

a weakening of the central structure of collective bargaining, abandoning the objective of full employment secured through fiscal policy, giving up a commitment to equality for the mere attempt to moderate the rate at which inequality has been increasing, and losing sight of the most disadvantaged in society.

I don’t remember Moschonas taking up the question of social democratic party policies in regards to global trade, but that is something I would be interested in learning more about.

At any rate, we probably could learn a lot by comparing those two books to Berman’s,

47

geo 07.09.11 at 6:07 pm

bianca @37 and 38: It sounds like you’re getting at some interesting questions, but I’m not altogether sure I follow you. When I said MacIntyre was “no Marxist,” that was just a way of claiming a certain credibility for the statement I quoted, absolving Marxism of responsibility for Stalinism. I don’t know whether MacIntyre would consider himself a historical materialist.

You seem to imply that “enlightenment liberalism” and “historical materialism” are incompatible. I’m not sure I agree, because I’m not sure they’re the same kind of thing. I think of enlightenment liberalism as primarily a broad critique of metaphysics and traditional authority, a critique based on philosophical materialism and political individualism. Historical materialism is a theory of historical change and social power. I don’t see why one can’t hold to both — in fact, I guess I’d say Marx did.

48

Lee A. Arnold 07.09.11 at 6:37 pm

I think that the supply-and-demand anomalies of healthcare, and the coming demographic bulge that will be consuming it, no matter what the costs, pose a long-term (50 year?) challenge to the ideas about proper government size in the predominant neoliberal ideology. (And that will look like a flaw in capitalism, though I think capitalism will fail in another 100 years for completely different reasons.) At the current time, U.S. Republicans are very happy to scare people about the size of government to try to gain an advantage in the next elections, although, except for a few wingnuts, they have no real intention of hurting Grandma. Here is what the politicians are looking at: right now the U.S. public polls 70% or more in favor of the following responses: don’t like gov’t debt; don’t touch Social Security; don’t touch Medicare; more taxes on the rich. It could be that Obama and Boehner are both so sick of the Washington, D.C. dance that they have decided to strike a bargain that alienates their respective wings and much of the rest of the public, all at the same time. They both know, of course, that Pelosi’s side of the House will not capitulate on Social Security and Medicare (nor should they: it is economically unnecessary, it is immoral and it is political suicide), yet without them Boehner doesn’t have the votes because the Tea Party won’t capitulate on higher taxes. So this whole thing has the odor of Obama throwing Boehner a lifeline that both know won’t work, and allows Obama to look like a conciliator (very important with the Independents) and to come out to imply that it isn’t John’s fault, but the rest of the Republicans are completely nuts. The wedge being driven into the Republicans between the moderates and the Tea Party is nearly complete, and Boehner might secretly think it is just as well. Either that, or else everybody in Congress goes along with the deal, promising to take no political advantages against each other — highly unlikely although most of them know that the deal is economically meaningless, because future Presidents and Congresses can do whatever they want (unless they are bound by a new Constitutional amendment).

49

Lee A. Arnold 07.09.11 at 6:46 pm

I should not have written that capitalism will fail, it will be transcended.

50

bianca steele 07.09.11 at 7:22 pm

geo, there is a book titled “Alasdair MacIntyre’s Early Marxist Writings, 1953-1974,” so I’m having to guess what you mean when you refer to the MacIntyre who is the author of a book published in 1978 as “no Marxist.” The passage I referred to in my earlier comment is not atypical of what might have been said by any anti-Stalinist Marxist in 1978 or, say, any time in the succeeding 10 or 12 years.

It’s important that MacIntyre was a Marxist for the first several decades of his career because he presents himself, not least in After Virtue, as someone who’s been steeped in Marxism; who at first thought it would be possible to oppose Stalinism from within Marxism; but who has concluded, using Marxism’s own arguments, that Marxism is invalid. But he concludes the book by condemning Marxism as a whole because Communist governments in Europe fell back on non-Marxist ways of thought: ways of thought Marxism, properly considered, condemns. Anti-Marxists do not praise “the moral substance of Marxism” or condemn Communist governments for ignoring Marx’s strictures against utilitarianism (not unless they themselves already live under Communism, and I thought Western leftists did not believe Kolakowski should be considered an anti-communist at that time).

You seem to have a confusing assumption that people brought up in the anti-communist West are going to have some kind of strong identification with Marxist and even Communist thought, which may be causing some of the problems I’m having understanding you.

51

bianca steele 07.09.11 at 7:27 pm

Or maybe you were being ironic?

52

geo 07.09.11 at 7:35 pm

bianca — sorry if I’ve confused matters, but I fear pursuing the discussion here might get too far off-topic. If you’d care to email me, my address is on my website.

53

Random Lurker 07.09.11 at 11:38 pm

@StevenAttewell 45

Well, this is my take on keynesianism:
a) we live in a capitalist economy where most people are employed by a few entities, that for ease I will refer to as “capitalists” though the reality is much more complex
b) capitalist hire people in order to make profits, hence if they have no profits they disinvest and stop employng people
c) when this happens on a mass scale, unemployed people stop buyng stuff, thus reducing capitalist profits. This creates a vicious spiral that we call economic crisis
d) hence the state should jump in and increase aggregate demand in some way, so that capitalists can have profits, employ other people who will then increse demand etc., thus taking the economy at “full speed”.

I see three problems in this:
1) since the whole point is to keep capitalist profits high, it is a form of trickle down
2) This takes for granted that, when the economy reaches full speed, the state can stop “pumping demand” and in fact recoup money by “anti-stimulus”. But in reality it is not obvious that this will be possible, and the idea that the state can permanently stimulate seems problematic
3) Also, it implies that the initial recession is caused by accidental events, like animal spirits in a bad mood or exogenous shocks. But, if crises are not accidental but a natural outcome of capitalism (for example if capitalism tends to increase wealth inequalities and excessive wealth inequalities cause crises), the keynesian approach seems insufficient to me.

54

John Quiggin 07.10.11 at 12:31 am

@53 But in the period when Keynesian economics was dominant, the distribution of income was more equal than at any time before or since.

http://en.wikipedia.org/wiki/Great_Compression

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StevenAttewell 07.10.11 at 12:33 am

RandomLurker – I hate to say this, but you are really off on Keynesianism.

1. No, the point isn’t to increase profits, but rather to stimulate consumption and investment. Trickle down refers to stimulating at the top of the economy, especially among high-earners, investors, and businesses. Keynesian theory, following from the marginal propensity to consume, holds that trickle down is inherently less efficient then bubble up. Keynesian practice usually relies on bubble up mechanisms – automatic stabilizers, the welfare state more broadly, public works, and broad-based tax cuts. Even the more conservative Keynesian tax cut of 1964 did at least boost the minimum standard deduction.
2. “it is not obvious that this will be possible” – it’s happened historically, both in the 1940s and the 1960s. It’s perfectly possible to get the economy going to the extent that you recoup the cost of the stimulus; like priming an engine, you just have to make sure that you’ve added enough fuel relative to the needs of the engine to get it going.
3. Keynesian theory does not suggest that “the initial recession is caused by accidental events” – Keynes in the General Theory discusses animal spirits as permanently either over-exuberant or over-depressed because of our habitual tendency to assume that current trends will continue. Moreover, in Chapter 12, Keynes argues that private capital markets are inherently unstable – Minsky’s approach builds on and formalizes this insight.

56

mclaren 07.10.11 at 12:51 am

Barry @ 20 remarked: “As has been pointed out, education is not free – both in the actual education aspects and the credentialing aspects. Housing is not free, health care is not free. Transportation is not free, and given the actions of state and local governments, will be getting more expensive in many ways. Food is not free.”

As for education, check out Kahn Academy, MIT’s Open CourseWare, etc. Because of the unsustainable rate of increase in college tuition, this is increasingly the wave of the future. Credentialing is, alas, very much not free. But if credentialing is the goal, then we’re not talking about education, but instead a disguised form of class sieve,
not so?

As for free housing, in Europe they’ve got squats, while in South America they’ve got a squelettes: half-finished skyscrapers abandoned when the money from the global housing bubble evaporated, now repurposed as living space.

“Squatting is becoming more prevalent and apparent around the world, especially as cities deal with the compounding crisis of economic downturn, stalled construction, and housing shortage. One of the most spectacular examples has to be the Tower of David on Caracas, Venezuela, an incomplete 45 story skyscraper, missing walls, railings, elevators, and provided utilities, that currently has a population of over 2,500 squatters.”

Source: “Tower of David: 45
Floors of Favela Chic,”
2 march 2011, D-Build Blog.

“Health care is not free.” If you’re homeless, even in America, it is. Hospital ERs are legally obligated to treat you. Meanwhile, in Europe, health care is most definitely free even if you lose your job and have to go on the dole. In fact, free health care
for everyone remains such a distinguishing feature of European societies that you have to wonder how Barry could say something as bizarre as “health care is not free.” Incidentally, Obama’s ACA includes billions for a huge expansion of free clinics to provide medical care to the working poor (you guessed) for free.

Barry tells us transportation is not free. Has he never heard of bikes? In the town where I live, by the way, the city council just abolished all bus fares. Yes, taking the bus is now 100% free. For longer trips, there’s online rideshare websites. Similar websites also let people crash at folks’ homse and apartments overnight for
free while they’re traveling.

As for the claim that food isn’t free: freegans. Also, food banks. Depending on your income, food is very much free.

While these examples are somewhat facetious, the basic point isn’t: alternative non-market non-capitalist modes living are increasing exponentially, courtesy of the internet + smartphones + rapid replicators (3D printers) etc.

On the other hand, if Barry’s rebuttal rests on the underlying larger claim that “all these things like health care and housing and food require a medium of exchange in a functioning capital-based economy,” then Barry’s point is a vacuous tautology and must be dismissed out of hand. For, after all, that amounts to saying nothing more than “in a market-based economy using capital as a medium of exchange, goods and services require a market and capital as a medium of exchange.” In short, under our current economic arrangement, we have set things up to use our current economic arrangement. Very impressive, and 2=2. That tells us nothing. The plain fact of the matter is that economic arrangements remain a social rule-set, and, as such, they can easily be changed. Indeed, in other societies and other eras, the social rule-sets governing the economy have differed radically from what we know as “market capitalism.” In the middle ages, for instance, it was a sin to charge interest for money, so for the most part it wasn’t done. Medieval cathedrals were built by volunteer labor. Hunter-gatherer societies have little sense of a market and no interest in capital. Commons areas like open fields where everyone could graze their sheep or community wells from which everyone could draw water lasted from the middle ages into the 18th century, and had nothing to do with market capitalism. Moreover, throughout economic history, goods and services which had once required intensive capital often became free: books were fabulously expensive during the middle ages and are now essentially free (google “[name of book] epub torrent,” or, if you prefer to abide by the law, visit your local library).

So Barry’s essential claim that the goods and services our society generates allegedly require capital and markets to exist simply doesn’t wash, since there exist many possible social arrangements for generating goods and services in a society. Market capitalism is only one of them.

To add to David Kaib’s rebuttal of Andrew F’s arguments, on a macro sense what seems to have happened sometime in the 1970s is that the elites of the developed world unwisely concluded that their economic future lay in a form of mrcantilism 2.0, best summed up in Alvin Toffler’s 1970s book The Third Wave. Toffler’s basic thesis was that the global economy had moved from agrarian economics to
industrial economies and was now shifting to knowledge economies. Britain had practiced mercantilism 1.0 during the 18th and 19th centuries by using its armies & navies & colonial administrations to force third world nations to sell the Brits raw materials below market cost which Britain then turned into overpriced manufactured goods which it sold back to its colonies above the prevailing market cost (this was the cause of the American revolution: essentially, Britain forced Americans to buy wildly
overpriced British tea while making it illegal for American colonists to make their own). In the 1970s, America seems to have decided to practice mercantilism 2.0 by using its armies & economic leverage to force third world countries to export knowledge work dirt-cheap which Americans would then turn into overpriced finished goods (Adobe PhotoShop, Microsoft Windows 7, U.S. movies on DVD, etc., etc.) which the U.S. would then sell back to the rest of world far above the
prevailing market price in their countries.

Alas, the American elites reckoned without the advance of technology. The internet + big hard drives + cheap recordable DVD-Rs made it easy for people in the third world to download and burn to disc any intellectual property they wanted. Despite increasingly frantic efforts in the U.S. to make downloading illegal, as Cory Doctorow points out, the internet keeps getting faster and disc storage keeps getting cheaper. So there is, practically speaking, no way to make mercantilism 2.0 work. Thus America’s current economic dilemma.

Another even more important factor wrecking market capitalism, however, involves limits on planetary growth.

Scientists now predict that all sea life will be fished out of the oceans within 40 years. Peak Oil is going to end globalized free trade, because it will soon become far too expensive to ship finished goods or raw materials around the world when oil rises to $500 a barrel. With global warming and planetary resource depletion (copper, rare earths, fresh water, you name it), the 21st century will be an era in which recycling everything will become much more important than profits.

I contend that market capitalism cannot work in a global economy where it’s far more important to recycle than to expand your economy, because if you don’t recycle, you die. When making a profit becomes a much less important consideration to a corporation than avoiding roasting ourselves with global warming by burning coal/oil/natural gas, profit-based market economies will disappear. By definition, if profits are insignificant compared to other issues (such as making buildings out of 100% recycled materials, or generating electricity by producing 0% greenhouse emissions), then profits will stop being important in the economy. If that happens, market capitalism as we know it will transform itself into something else — we know not what, something we don’t have a name for yet. Not communism, not socialism, not fascism.

As for the various assertions that the current economic disruptions represent mere blips in the curve of ever-expanding market capitalism…that’s Larry Summers’ argument, and like, Larry Summers, it’s deeply stupid. Summers dismissed criticisms of market capitalism in a recent interview with the blithe remark that “every time the global economy runs into a rough patch, people who don’t like capitalism claim that capitalism as a whole is breaking down. But this has never happened.” Summers typically fails to realize that he is parroting the exact same failed and futile defense deployed by Soviet apparatchiks in the waning days of the Soviet Union. Communism was the best system ever invented, the apparatchiks claimed, and communism could never fail: it could only be failed by imperfect implementation.

This Larry-Summers-style argument that current upheavals are just a momentary glitch in the ever-onward ever-upward progress of market capitalism is a deeply stupid argument because it falls into one of the oldest logical fallacies — namely, it is unfalsifiable. The Soviet apparatchiks could never be proven wrong in their assertion that communism could not fail but could only be failed, for any example of the USSR economy failing could neatly be explained away by blaming the implementation rather than the underlying failure of communism as an economic system. Because this argument contained no failure condition, it was unrebuttable and thus entirely vacuous and devoid of content. Like the claims of dowsers and astrologers which never contain any testable failure condition by which we can once and for all falsify the hypothesis, the claim that the current global economic turmoil is just a transient glitch in an essentially stable workable system lacks any testable failure condition by which we can once and for all falsify the hypothesis that market capitalism is a stable viable economic system.

So let’s ask: under what conditions would an objective observer be forced to conclude that market capitalism as a whole represents an unworkable system that must be junked?

Hint: if your answer is “under no conditions,” then your advocacy of market capitalism is based on fanatical ideology rather than logic and facts, and we need not take you seriously. Every hypothesis must have some failure condition by which we can test it, if the hypothesis is to mean anything. Otherwise it’s just astrology or dowsing under another name (“you didn’t believe strongly enough in the dowsing rod, that’s why it didn’t work!”).

Market capitalism seems to me to have a number of failure conditions which we are rapidly approaching. The first failure condition involves situations like fishing all the sea life out of the oceans. You cannot keep growing the economy forever because there are global limits. If you fish all the sea life out of the oceans, the fishing industry disappears: that’s the end of market capitalism for the fishing industry, period. Market capitalism no longer works under those conditions of endless growth.

Another failure condition for market capitalism involves finite resources like high-grade copper and iron ore or rare earths or fresh water or petroleum. The entire world supply of indium, for example, would not suffice to produce enough solar cells to power the United States. That’s a failure condition. It means recycling will soon become much more important than expanding the economy. Market capitalism no longer grows endlessly under those conditions, so things must change radically in our economic setup.

A third failure condition for market capitalism involves pollution, including greenhouse gasses. When profit becomes much less important than avoiding roasting yourself because download Los Angeles has hit 135 degrees Fahrenheit and you have to bike 20 miles to work because gasoline now costs $75 a gallon, that’s a failure condition for market capitalism. Letting the market “work it out” isn’t an option under those condition, because the market will work it out by letting vast numbers of Los Angeles residents die of heat prostration.

A fourth failure condition of market capitalism involves the human carrying capacity of the planet. We’re already beyond that carrying capacity. It will soon become much more important to control population than to endlessly grow the economy, particularly when growing the economy means drying up the snow pack in the Himalayas that feeds two of the greatest rivers in the world, the Yangtze and the Ganges, and when those two rivers start to dry up, two billion peasants will starve and die. At that point, conventional market capitalism no longer works. It’s time for something different.

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kenny easwaran 07.10.11 at 3:26 am

Mclaren – I believe the point about things not being free is that all these things require resources no matter where they come from, unlike much intellectual property which really can be free in the relevant sense.

58

Omega Centauri 07.10.11 at 3:36 am

@26 Andrew. I’m going to argue that the case that economies can return to trend (normal), with some of the same arguments as McClaren @56. For the past roughly two hundred years we have been able to grow the world economy through several very general means. First is the accumulation of built capital. Secondly we had the accumulation of knowledge as a form of capital. But, there was a third leg to this stool, we could expand the economy by simply digging up more stuff (or fishing just a little further from shore). Now the third leg of the stool is rapidly breaking. Perhaps we can still make forward progress via the first two legs of the stool? But, its clearly going to be much more challenging then we’ve grow accustomed to (at a minimum). And we had a further advantage, a historically very unusally stable climate, along with nearly stable sealevel. Now, that is shot as well, so we will have yat another climate/weather headwind to add to the resource depletion one.

The really key thing, IMNSHO, is to figure out how to transition the present economic/social/governmental paradigm into something that will work in this new harsher reality. And this must be accomplished against formidable reactionary forces. We see for example oil price spikes being blamed on peak-oil theorists/popularizers. [See no shortage, and the price can remain comfortably low].

In a physical sense, I’m not as pessimistic as McClaren. Downtown LA won’t reach 135F, even if the globe sufers say 7C of warming. Personal transport won’t reach the equivelent level of $75/gallon (i.e. the combination of electric transport, plus slower speed, and perhaps lower safety standards can get transport affordable. Indium shortages won’t stop PV short, but may cost some efficiency in future products as inferior materials will be substituted. Global trade won’t grind to a halt, because of expensive fuel, it can travel slower, and begin using wind power. So it may become more expensive, and slower, but it won’t vanish. The real dangers/challenges are political. Overcoming the temptation to scapecoat rather than implment actual solutions. And beggar thee neighbor via for example stealing his resources approaches, instead of learning to get by with less. Our kids are certainly going to be living in interesting times.

59

Bill Murray 07.10.11 at 4:57 am

(And that will look like a flaw in capitalism, though I think capitalism will fail in another 100 years for completely different reasons.

Capitalism has failed many times, but as long as their are people rich enough to buy politicians and economists it will always come back.

eta: I see you have changed fail to be transcended — whatever transcends capitalism will have to do an even better job of transferring money back to the rich while holding out the fake promise to the rest that they too can join. That’s a tough prescription.

60

Henri Vieuxtemps 07.10.11 at 8:06 am

The plain fact of the matter is that economic arrangements remain a social rule-set, and, as such, they can easily be changed.

Easily?

61

Random Lurker 07.10.11 at 8:19 am

@John Quiggin (54) and Steven Attewell (55)

I think that the “great compression” and the success of keynesian policy in the decades after WW2 were aided a lot by the economic effects of WW2:
After the war, the various euroean and japanese economies were destroyed (I mean the phisical infrastructure), and labor was quite cheap in those countries.
The USA lent a lot of money to those economies, that they used to rebuild their phisical capital, and buyed that phisical capital in a big part from the USA, so that the loans acted as a sort of “vendor financing”.
Then those economies had a very fast growth, due in part to the lower cost of labour, and in part on the excessive confidence on their ability to rely on exports forever.
This was in some sense a bubble, that popped in the late ’70s (although it seems to me that the current european leadership still has an export oriented mentality and still waits for the USA to pull the EU out from the crisis).
I’m not convinced that this can be repeated, and even if it can, that it can be repeated forever: China and India apparently already had their “miracle”, and they represent almost half of human population.
With regard to bubble up VS trickle down, I too believe that it is a big difference, however, if for example the multiplier for increased spending is higer than the multiplier for reduced taxation, it seems to me that the logical consequence is that the state can stimulate the economy at 0 cost simply by taxing more (and more progressively) and spending more: this would be a laudable outcome to me but it seems that it is a “leftish” interpretation of keynesianism, not “keynesianism proper” (though I never read Keynes, and I understand that the keynesianism I know is the result of successive formalizations that could be different from his original thought).

62

mpowell 07.10.11 at 1:35 pm

I want to make a point here about the economy. Some people think we’re losing jobs because we’re entering a new age lacking scarcity. This is pretty silly since as little as a few years ago there were no problems with unemployment. Others have mentioned that employers are determined to only hire internationally now. This is also wrong. There are plenty of employers hiring domestically right now. We’re talking about macroeconomics here. You can’t use the will of a few actors to describe the kind of phenomenon you’re trying to.

I have a different explanation: Keynes requires an update along the lines of what MMT is arguing. We don’t need permanent stimulus, but we need massive government debt to fund the desire globally to backstop central banks with federal dollars. The dollar is regarded being treated like gold and the only way for the balance sheets to work out is for government’s like China’s to get the dollars from the US government or from US savers. This problem could be held off for a while with a credit fueled housing bubble, since it drove up the appearance of personal savings in housing value and kept domestic consumer demand strong, but people will also generally need decent savings accounts to support asset prices in real estate or the stock market.

Unfortunately, our government is being run by economic ignoramus. They literally don’t understand anything. That high unemployment calls for more deficit. That low inflation and low bond rates indicate that the deficit isn’t starving the economy of anything or impacting market confidence. That the exogenous fact of China’s preference to hold a trillion dollars has to be acknowledged in policy.

63

StevenAttewell 07.10.11 at 2:00 pm

RandomLurker – It would be a good idea to read Keynes before debating Keynesianism, especially given the divergence in interpretations between “business”/”fiscal” Keynesians and “social” Keynesians.

mpowell – in terms of Keynes and updates, what about his argument in Chapter 12 that investment should be socialized?

64

Random Lurker 07.10.11 at 2:55 pm

@StevenAttewell 63
Touchè

65

Cranky Observer 07.10.11 at 3:22 pm

> For the past roughly two hundred years we have been able to grow the
> world economy through several very general means. First is the
> accumulation of built capital. Secondly we had the accumulation of
> knowledge as a form of capital. But, there was a third leg to this stool,
> we could expand the economy by simply digging up more stuff (or
> fishing just a little further from shore). Now the third leg of the stool
> is rapidly breaking. Perhaps we can still make forward progress via
> the first two legs of the stool? But, its clearly going to be much more
> challenging then we’ve grow accustomed to (at a minimum).

The word “stuff” in your third leg neatly glides past the critical nature of petroleum and in particular liquid fuels in the development of the Atlantic economies since 1880. Thousands upon thousands of quads of petroleum energy have been dumped into our foodstuffs, our cities, and our way of life. Only iron ore approaches petroleum in importance, but there are substitutes for steel (and if we really started to run out we could get more from asteroids); there are no substitutes or magic new sources of petroleum.

I would love to be optimistic about sliding smoothly into a brave new world of electric cars and algae-derived diesel fuel with the transition facilitated by the invisible hand, but I don’t see any evidence of that really happening at the technical level. And never at the social level while gasoline prices in the US are $3/gal and one of the major political parties claims there is a virtue in deliberately wasting petroleum.

Cranky

66

Henri Vieuxtemps 07.10.11 at 3:44 pm

Well, those of you who are socialists, it sounds kind of defeatist when you’re saying that capitalism is doomed because there isn’t enough fish left in the oceans. So, what if there was enough fish and oil, then what?

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John 07.10.11 at 4:17 pm

Hypothetically speaking, and in keeping with the general theme of living for free, would it be possible to complete a PHD through the use of torrent books and libraries and a supervisor working independently from his/her university keeping in contact mainly though email? Would any academic here ever consider using their spare time to supervise, (though not necessarily to the same extent they would their own students), a dissertation they found interesting emailed to them by a stranger, with relevant credentials (i.e an undergraduate and Master’s in a related field) who was also working fulltime and was going to complete the PHD at their own pace? Is there any possibility of then credentialing this after completion? If this question is idiotic feel free to ignore, I won’t be offended.

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Oliver 07.10.11 at 5:21 pm

That’s Madison’s position, but it’s not determinative. The basic issue is this, Congress has required that the Executive spend $X

Required or authorized?

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Walt 07.10.11 at 5:37 pm

It’s got to be required, right? If Presidents had that kind of power, they would already be using it routinely.

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Lee A. Arnold 07.10.11 at 5:39 pm

Okay, Boehner has not accepted Obama’s grandiose offer, because it contains tax increases. Right now, the comments to the U.S. newspapers are going 3 to 1 against the Republicans, with that last 25% saying “No more taxes, shut it down” (i.e. the Norquist Tea Party). However, the Tea Party predominates in the Neanderthalish comments to the Wall Street Journal, perhaps because the whole operation has entered the Murdoch-Fox universe and anybody with a brain pretty much ignores the paper — an astonishingly quick turnaround in U.S. opinion upon a newspaper that was once revered, except for the op-ed pages which had been obvious trash for decades, and which your less-than-humble reporter predicted two years ago in these very comments, https://crookedtimber.org/2009/05/07/murdoch-wants-to-charge-people-to-read-what-the-pr-industry-spews-out/#comment-275011).

I am also sticking with my other theory that both sides in the debt talks had foreseen Boehner’s step, since they have been banging on this for months now with no headway, and anybody else would, too. The only logical conclusion is that the mainstream Republicans realized some time ago that the Tea Party has become an out-of-control Frankenstein monster. The next step, after Obama finishes today’s 6 pm EST debt talks, is for the President to come out and say, “Okay, we offered everything, and they won’t deal — we are going to have to shut it down, and that means Social Security checks and military pay, too.” Putting it squarely on the Tea Party Republicans, whom we can all then pitchfork into the sea. And Boehner will have secretly shrugged his shoulders.

On global warming, someone wrote above that the world could withstand a 7-degree increase. No.
This is terribly wrong. Even if that is Fahrenheit. It would be ecological death, due to insufficient ecological (and evolutionary) time to adjust to it. But I think the biggest danger at the moment is the possibility of an unexplained spike in temperatures for one or two years, that shuts down most of world agriculture — and with it, shuts down human civilization. People will still be arguing about the causes afterward, and the sources of natural variation — that is, if anyone has two years of canned goods and survives the bloody mayhem. Scientists and economists have responded this scenario by saying that itcannot happen, though they cannot say why. I am afraid that is not very reassuring, considering that the temperature records before a thousand years ago are very gross and spotty indeed, yet evidence of astonishing, frightening temperature swings have been accidentally found. And considering their batting averages on other complex systems events, so far.

It is important to distinguish the problems of the economic system now, with its eventual change over much longer periods. Right now, we don’t know whether technological change and resource substitution can continue to stay ahead of resource depletion and population growth — there is no scientific law that says it must go one way or the other, and although technological change in energy systems seems to be happening much faster than most people realize, the observations of logarithmic growth’s disastrous effects in other complex systems should make everyone very, very concerned. Right now, globalization is dislocating labor in the developed countries more quickly than ever, while technological change is making people more obsolete and their educational requirements are rising — leading to more volatile careers, more developed inequality, and possibly more structural unemployment. Right now, the financial industry is in the saddle, directing government policy and taking most of the income growth, although much of their gambling does not lead to commensurate real physical capital investment, and their use of money as a commodity is crossed over with the use of money as a medium of exchange that is stored in their banks, so we have to keep bailing them out, large or small, once every few years it appears.

However, the reasons why capitalism will be transcended within a hundred years are medical and biological. We are quickly heading into life extension and cognitive enhancement. People are going to live a very long time if not forever, and they are all going to be equally smart. Life extension eliminates the only truly scarce resource, which is human time. That changes a fundamental premise of neoclassical economics. Beachfront property is also scarce, but we will manage. Secondly, cognitive and intellectual enhancement will virtually eliminate differences among people that are presumed now to justify economic distinction — and it will also eliminate greed, which is a mental disease, no matter how long humans have suffered from it. We are already half the way cured, on that one. The elimination of greed-disease changes another fundamental premise. We are not headed into a steady-state, but an even keel.

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Alex 07.10.11 at 5:52 pm

the runt’s more robust siblings affect a profound lack of interest in what happens to the little guy, whether it’s the Brits and Polish carpenters

What? What happened to Polish carpenters in Britain that was so terrible? Did I miss the Great Carpenter Pogrom of 2009?

No. Some of them went back to Poland. Some of them are still here, carpentering. (And the canonical Polish immigrant was a plumber.)

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Barry 07.10.11 at 6:11 pm

Wow. what a loooooooooooooooong post.

Let’s start with education – yes, there are far more resources available than when I was young, but they are of most use to those who already have an education, they are for limited items (try getting a good ME degree online, or a good bio degree). Credentialling is part of education, for better or for worse (IMHO, mostly for worse). The reasons are obvious, and I haven’t heard too many people talking about entry-level ‘grads’ being hired to start in a field who were not formally credentialled.
Strike 1.

Transportation – I live in a city which has a walkable and bikeable downtown; one could function for a loooooooooong period of time by bike, foot and the odd busride. This few square miles of non-care-needing haven is, of course, not representative of the region, let alone the state, let alone the parts of the US where 75% or more of the people live. Strike 2.

Medical care – the fact that ER’s do not have to offer medical care, but only stabilization under limited circumstances is rather well know. Strike 3.

Just to hammer in the point, I’ll continue to shelter – squats?!? That’s what you’ve got to offer for shelter? Squat for a year with a child, in a climate which can be brutally hot and/or cold for parts of the year (i.e., most of the USA), with the police rousting you every so often, and come back to me.

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Matt 07.10.11 at 8:39 pm

What I learned from Planet of Slums is that there is no karmic balance that will reliably reverse human immiseration or environmental destruction. You can densely pack poor humans in flimsy, flammable shanties. You can leave them no choice but to shit in the same water they use for washing. You can pack them so densely that 99% of the local flora and vertebrates die off. Even so, they will continue to live, along with other hardy survivors like algae, rats, and insects. They will still reproduce faster than they die. Their relatives will continue to migrate in from the countryside. They will not necessarily rise up in anger against the wealthy fraction on the other side of the razor wire topped security barrier, and even if they do organized power generally triumphs over impoverished mobs.

Humans will probably use up all accessible oil, fish out the oceans, leave the big cats and African megafauna extinct outside of zoos, and push atmospheric CO2 well past 600 ppm. I wouldn’t count on these disasters leaving a silver lining of wiser, long-term-focused, not-easily-fooled publics that reverse destructive behaviors and cut down parasitic elites. It seems just as likely that new generations grow up never having known fish free for the taking from the ocean or water that was drinkable without treatment. They’ll not feel the loss viscerally, just as I can’t really feel the loss of the passenger pigeon or “free” land for homesteading on the American frontier. They’ll grow up with lowered expectations and elders’ moping over vanished glaciers and forests will be treated like Grandpa Simpson’s crazy whining.

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Omega Centauri 07.10.11 at 11:54 pm

Lee @70. I didn’t say +7C wouldn’t have dire consequences, just that 135F in downtown LA wouldn’t be one of them. Clearly we have the potential any year now, for global food supply to come up far short of need. Thats far different however from the near universal starvation scenario you posit. In fact we could say that even then its primarily a distributional problem, i.e. if the calories consumed by rich world cattle were redistributed to poor humans, we could avoid mass starvation. But, our distributional paradigm is capitalist food chasing money, not food chasing need, and short of a strong one world government, no one knows how to change it.

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Andrew F. 07.11.11 at 11:29 am

This is a thread crackling with ideas, but to focus on just a few of the comments above:

Kaib @22: The problem with that argument is that this crisis was caused by a bubble, which was created to deal with the pop of a previous bubble, and so on. We haven’t really been at “normal” since the 70s, when the link between productivity growth and wages was broken in the US and public policy was redirected to funnel money to the very top of the income / wealth scale.

What made the real-estate bubble so destructive was the impact it had on systemically important financial companies, and the interconnection of those companies to each other via CDS’s. Nothing to do with the tech bubble.

As to the 1970s and the link between productivity, you’re talking about a different problem. When I say return to normal, I’m talking about the low unemployment the US generally enjoys, not a return to wealth/income distribution levels of the mid 20th century.

What is more likely, absent some significant increase in political mobilization from the left, is another bubble to paper over these problems and provide speculative profits again, temporarily.

I disagree with you here. The profits to be made in the economy aren’t simply that from speculative trading on newly forming bubbles. Before the real-estate bubble, there was the tech bubble, and we can find bubbles going back at least to Dutch tulipomania in 1637 and the South Sea Company in 1711. Nonetheless the economic growth experienced since the 17th century has been quite real and substantial. Most bubbles don’t cause the kind of havoc that the real-estate bubble did, and most profits and growth have nothing to do with bubbles.

Omega @58: For the past roughly two hundred years we have been able to grow the world economy through several very general means. First is the accumulation of built capital. Secondly we had the accumulation of knowledge as a form of capital. But, there was a third leg to this stool, we could expand the economy by simply digging up more stuff (or fishing just a little further from shore). Now the third leg of the stool is rapidly breaking.

I think your description of the third leg is too narrow. It’s not really “digging stuff up” but rather the extraction of energy and material from different states. The process of extracting and delivering petroleum products, for example, is really the same as extracting and delivering electricity from solar radiation, or from wind energy, or from nuclear reactions. My take on this third leg is the opposite of yours. I think the third leg is actually one of the brightest points on the horizon. Some of the extraction will continue to be digging stuff up – deep sea mining, advances in shale oil extraction, natural gas, etc. – and some of the extraction will be quite new.

More generally, and moving back to the original post, the problem with pure deficit cutting at the moment is the short-term impact. It will slow economic recovery. People will suffer as a result.

From a long-term perspective, though, deficit cutting can be highly beneficial, by making US government spending and borrowing more sustainable over the long-term, providing more flexibility, and, when the economy does recover fully, allowing firms cheaper access to capital over a longer period.

In other words… the problems being raised in the post, and in the comments generally, are actually short-term issues, not long-term issues. Even the problem of wealth-distribution will at some point run into diminishing returns from labor arbitrage and a level global population.

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Alex Prior 07.11.11 at 2:10 pm

Aulus Gellius@23

Interestingly enough, you were not off topic. The accusation of sacred prostitution and lending money at interest was mud slung at the adherents of Isis by, you guessed it, third and fourth century Christians. As a long term student (admittedly amateur) of early Christian politics and the rise of the concept of heresy, the modern American right fills me with decidedly unholy glee. Sort of like discovering that intellectual coelacanths still, surprisingly exist. The tactics are surprisingly similar, and the Platonic framework almost totally unacknowledged. Bart Ehrman is very accessible, but for my money John Julius Norwich’s Byzantium provides the most witty and lucid account.

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Bruce Wilder 07.11.11 at 3:36 pm

@Andrew F: “When I say return to normal, I’m talking about the low unemployment the US generally enjoys, not a return to wealth/income distribution levels of the mid 20th century.”

There might be a necessary coincidence there.

The kind of income/wealth distribution that the U.S. has now, with a financial sector runamuk, require, as a matter of economic necessity, a higher degree of mass impoverishment and unemployment. A steady stream of rents from all those payday lenders kind of requires it, don’t you think?

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john c. halasz 07.11.11 at 4:30 pm

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hartal 07.11.11 at 6:25 pm

On unemployment see Sunday’s NYT “Somehow, the Unemployed Became Invisible
By CATHERINE RAMPELL”

Fine piece, but misses the elephant in the room (see Eviatar Zerubavel, The Elephant in the Room)–RACE.

The long term unemployed have long been and remain HYPER-VISIBLE in the US but only in a prejudiced way as undeserving minorities–lazy and felonious blacks and parasitic illegal aliens. The Tea Party is mobilized around making sure patriotic Americans are never taxed for “those people”.

As the unemployment equilibrium proves to be stable and Keynesian policies are cruelly rejected–I predicted this ten years ago on the basis of my understanding of Marxian theory–one can only fear a hardening of racial Darwinist assumptions even if they remain unspoken or repressed in the sense of not being allowed through evasive conversational moves to be articulated explicitly (Freud did have a rather defensible linguistic theory of repression, see Michael Billig Freudian Repression).

On racial Darwinism, see Andre Pichot The Pure Society: From Darwin to Hitler, many writings at the website of UNC Anthro Prof Jonathan Marks, and of course the great Richard Lewontin (and his French counterpart Albert Jacquard).

On anti-immigrant discourse, see Leo Chavez (The Latino Threat) , Aviva Chomsky (They Take Our Jobs), Mae Ngai (The Impossible Subject), Desmond King (Making Americans), and Douglas Massey (recent piece on time for immigration reform).

Just thought I would drop some names to keep my friend and admirer Chris Bertram happy.

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hartal 07.11.11 at 6:58 pm

It also seems that the Tea Party and the likes of Paul Ryan and John Cochrane are being bankrolled by multi billionaire hedge fund managers who want to make sure that Obama is stymied at every step and thus fails so that he won’t have legitimacy to carry out some minor reforms of the financial industry. There was a crazy piece in Talking Points Memo about the UChi economist, the bat shit crazy Congressman and a hedge fund manager sharing some expensive wine at some some swank Beltway restaurant.

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mclaren 07.12.11 at 12:47 am

John @67 asks: “Hypothetically speaking, and in keeping with the general theme of living for free, would it be possible to complete a PHD through the use of torrent books and libraries and a supervisor working independently from his/her university keeping in contact mainly though email?”

It’s certainly possible to complete the equivalent of a PhD through the use of torrented books, libraries and so on, if the person is sufficiently self-motivated. The evidence seems clear: prior to the advent of the modern university, isolated researchers like Cavendish did work at PhD-equivalent levels without the need for a modern credentialing program.

“Would any academic here ever consider using their spare time to supervise, (though not necessarily to the same extent they would their own students), a dissertation they found interesting emailed to them by a stranger, with relevant credentials (i.e an undergraduate and Master’s in a related field) who was also working fulltime and was going to complete the PHD at their own pace? Is there any possibility of then credentialing this after completion? “

The obvious answer to this question is “NO!” Credentialing represents an entirely different process from gaining skills or knowledge. The credentialing process depends entirely on the social network at the elite institutions, and you don’t get that online. Moreover, people can get prestigious credentials without having even the most basic skills or knowledge nominally required to get that credential. Examples include Megan McArdle, who earned a masters degree in economics without knowing what something as basic as net present-day value is, or Newt Gingrich, who earned a PhD in political science without apparently bothering to learn even the most basic rudiments of political history. (Hint: FDR did not exacerbate the Great Depression and Obama is not acting like a dictator. Someone who implicitly compares Barack Obama with Josef Stalin needs to return his poli sci PhD and ask for a refund.)

Omega Centuri repeatedly claims: “I didn’t say +7C wouldn’t have dire consequences, just that 135F in downtown LA wouldn’t be one of them.”

Let’s look at the evidence. On 26 July 2006, the temperature in Woodland Hills CA (a suburb of Los Angeles) reached 119 degrees F. Last summer, in 2010, the temperature in downtown Los Angeles reached 114 F.

119 F is about as much higher than previous record highs in Los Angeles 30 years ago as 135 F is above the 119 degree F record high we got in July 2006. The available evidence strongly suggests that within another 30 years, unless the world starts drastically reducing its greenhouse gas emissions (as in an 80%-plus drop starting tomorrow), summer temperatures in downtown Los Angeles will reach 135 degrees F.

As for the claim that gasoline won’t reach $75 per gallon, what facts and logic do you base that on? We’re headed for peak oil. The world’s available petroleum reserves are finite. What new developments are going to reduce the price of petroleum in the near future? Please lay them out for us so we can all understand why the price of gasoline won’t continue to increase without limit as global petroleum reserves draw down.

Take a look at this graph of Chinese oil consumption over 20 years. Now explain to me why this won’t increase gasoline prices worldwide.
http://www.businessinsider.com/two-worrying-charts-about-chinese-oil-demand-2011-6

As regards claims about the end of capitalism, it’s disappointing that no one has yet used the economists’ argument in favor of markets. The economists’ argument goes like this: when you’ve got two people who want to exchange goods or services, it’s relatively easy to match ’em up. But when you’ve got lots of people, it’s so much more complex that it’s much easier to use a medium of exchange — money. In order to use money, you need a market, so market capitalism is inevitable.

This argument sounded convincing prior to the advent of computers and the net. But now computers + the net can do a better job of matching supply and demand than money, because the net + computers eliminate the informational asymmetries of a market. In other words, there’s no need to pay the rents demanded by parasitic middlemen when you can directly match you needs with someone else’s courtesy of the net. So craigslist winds up destroying newspaper classified ads, online ridesharing networks eat into the market for taxicabs, and so on.

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Matt 07.12.11 at 3:47 am

As for the claim that gasoline won’t reach $75 per gallon, what facts and logic do you base that on? We’re headed for peak oil. The world’s available petroleum reserves are finite. What new developments are going to reduce the price of petroleum in the near future? Please lay them out for us so we can all understand why the price of gasoline won’t continue to increase without limit as global petroleum reserves draw down.

Well before $75 per gallon, it would be cheaper to drive a Nissan Leaf, even without tax credits, even charged up only on photovoltaic electricity. Taking the Leaf at MSRP $32,780, it transports you 5 kilometers per kilowatt hour, and PV energy runs as much as 40 cents per kilowatt hour*, for a fuel cost per kilometer of $0.08.

By comparison, at $75 per gallon of gasoline a Ford Fiesta, 40 MPG, at MSRP $13,200 has a fuel cost per kilometer of $1.17. After 18000 kilometers driven the Leaf has made up its higher sticker price in lower fuel costs alone. Its battery pack is warrantied for 8 years/161000 kilometers. I’ve read repeatedly — though I don’t know if real world testing bears this out yet — that pure electric vehicles should also have lower maintenance costs because they are mechanically simpler.

ICE vehicles may try to close the gap with lower sticker prices and/or improved fuel economy, but electric vehicles aren’t standing still either. The price decline of renewable electricity and batteries has been slower than I like, but still impressive over the past decade with signs that PV electricity in particular still has plenty of cost reductions in sight. According to the National Renewable Energy Laboratory, PV generation capacity deployed on existing rooftops alone — no additional land or long-distance transmission needed — could provide as much energy as all the USA’s nuclear reactors combined, about 22% of 2006 US electrical consumption. Their numbers are based on relatively low conversion efficiency (13.5%). Commercial silicon PV can already do over 20%, and unlike thin-film technologies there’s no conceivable shortage of silicon.

In the end I don’t really expect gasoline to stabilize at $75 per gallon or more, mostly because it will eventually be less expensive to manufacture methanol (from water, CO2, and electricity if necessary) and burn that directly or convert it to gasoline than it will be to get the last dregs of natural crude oil out of the ground and refine it. But even if the $75 per gallon price were real it’s not quite the crisis you would imagine by looking at last month’s gasoline spending and multiplying by 20, because people are going to start economizing and substituting well before gasoline consumes 90% of household budgets.

As for transient high prices as a result of wars, natural disasters, sudden revelations about fudged oil reserve figures, etc. I don’t know if gasoline prices may hit $75 (in constant 2011 dollars). My only prediction is that prices so high will not last, one way or another.

*This is at the high end of estimates for costs in small-scale systems. The low end for small systems is $0.25 per kilowatt hour.

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Andrew F. 07.12.11 at 12:01 pm

Bruce @77: The kind of income/wealth distribution that the U.S. has now, with a financial sector runamuk, require, as a matter of economic necessity, a higher degree of mass impoverishment and unemployment. A steady stream of rents from all those payday lenders kind of requires it, don’t you think?

Why would the financial sector require a steady stream of rents from payday lenders?

Matt @82: A released, or forthcoming, study from the Boston Consulting Group (reported in the WSJ) compares the financial benefits of owning pure electric, hybrid electric, and ordinary cars respectively. Assuming $4.50 gallon of gas, and $0.20 per kW, 15k miles per year, and also assuming lower maintenance costs for the electrics due to fewer moving parts, the electric/hybrid becomes more economical for a consumer after 6 years of ownership.

If you tipped that gas price from $4.50 to $7.00 or even $8.00, and held all your other assumptions fixed, you’d probably push electrics/hybrid into economical territory for everyone after a much shorter period of ownership, igniting demand for hybrids and vastly reducing demand for gasoline after a couple of years.

You mentioned solar, and we haven’t even discussed the impact of natural gas.

Future looks good to me.

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Barry 07.12.11 at 1:05 pm

mclaren: “The evidence seems clear: prior to the advent of the modern university, isolated researchers like Cavendish did work at PhD-equivalent levels without the need for a modern credentialing program.”

There is a difference between the odd incident and mass supply.

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ajay 07.12.11 at 1:41 pm

56: “this was the cause of the American revolution: essentially, Britain forced Americans to buy wildly overpriced British tea while making it illegal for American colonists to make their own”

Make their own?? I am guessing here that mclaren knows almost nothing about a) the American revolution and b) what tea is.

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ajay 07.12.11 at 1:44 pm

More seriously, mclaren is missing the fact that all these non-market ideas she loves are essentially parasitic on a market-based economy, and – far from her forecasts of exponential growth – this will limit them to serving only a small number of people.

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