Blogging the Zombies: Expansionary Austerity – Further Reading

Maybe someone caught this already but the wording re. the imposition of the Italian government “(headed by a former chairman of the European Commission)” is not quite right.

Mario Monti is not a former chairman of the European Commission. You could say “former member of the European Commission” (probably best), or perhaps “former Competition Commissioner of the European Commission”.

I realize it’s not something you’re going to tackle in the book, but are you aware of and do you have an opinion on Joseph Stiglitz’s revisionist account of the depression? Long story short he claims the depression was a by-product of increased farm productivity over the preceding decade and a half, which made it harder and harder to farm profitably. For a while, farmers sustained themselves by accruing debt, and then that became unsustainable. It took world war 2 to impose an industrial economy by force and find a new equilibrium. He argues further that we are now faced with a similar difficult transition from an industrial to service economy. Here’s the URL to a brief summary of his case:

http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201#

Arguments of this sort are traditionally greeted with the Parable of the Hot Dogs and the Buns, which oversimplifies even within its oversimplified terms by ignoring transition costs. All the Lump of Labor fallacy really means is that it is not *necessarily* true that productivity improvements reduce employment, not that it cannot be true, and a lot depends on the time scale you’re looking at.

If Stiglitz is right, the postwar period makes more sense. The creation of a broad middle class was not just a political victory of the Left, though it certainly was that, it was a necessary element of an industrial economy for Henry Fordist reasons. To employ the huge pool of superfluous farmers in industry, you had to have higher demand for industrial goods than the elite themselves were going to generate. So those farmers had to become major consumers as well as producers, and a culture had to be generated that would encourage this. Enter consumerism, the encouragement of conspicuous consumption among the middle class (previously encouraged primarily among the upper class).

Whenever economist say “service economy”, it has an air of “there be dragons” for me. Do we understand what such an economy looks like? Does it still require that most be middle class? Stiglitz identifies the four major components of the current service portion of the economy: finance, real estate, health, and education. Of these, the first two were bloated before the crash. I would argue the first still is. Shall they pick up the slack by becoming even more bloated? The last two could be greatly expanded, but there seems to be a political unwillingness to pay for them, at least in a socialized manner, which is the only one known to be compatible with the broadest pattern of useful application. Perhaps if finance and real estate are brought down to size, but there seem to be few even thinking in these terms, the outer boundary of the thinkable being more like “restore Glass-Steigal”. I think the next economy will require fundamental changes in social organization and values, just as the last one did (for the last transition, the suburbs and conformist consumerism, respectively). For one thing, a pure service economy that is not highly class stratified implies middle-class people employing other middle-class people more or less directly. Now, the middle-class mostly work for the rich and employ the poor. This change implies a different ethic. I also think consumerism has reached its environmental limits anyway, but we don’t really have a clear idea what is to replace it.

John, Agreed. I was just trying to keep the point fairly simple.

There is an analogy to blood letting. Belief in blood letting was so strong in 1820 that Beethoven allowed his doctors to bleed him to death. Medicine has moved on to the point where empirical evidence must be submitted and evaluated independently before a treatment is approved. Evidently, the practice of economics (as opposed to the theory) is less advanced.