Secular stagnation and technology

A question–I really don’t know the answer here. How much of Australia’s good performance is related to its status as a commodity exporter during a serious commodity boom?

I’m glad you pointed out that the tech stagnation folks come out of the woodwork every time there’s a bad recession (or even any recession) to peddle their wares. I still remember the version of it that happened before the late 1990s boom in the US, with Jeremy Rifkin’s The End of Work.

I was looking at this:

The primary thrust of any strategy under current circumstances must be an attack on the wealth and power of the financial sector and the 1 per cent (for practical purposes, these may be treated as one and the same). That means more progressive taxation, an increase in total levels of taxation and expenditure and a substantial tightening of regulation of the financial sector, with the aim of making that sector much smaller and less rewarding than it is at present.

The political economy of this doesn’t seem good – look at what happened with Hollande’s 75% millionaire’s tax. You either need another World War 2 level reshaping event or the rise of strong progressive governments across the developed world to coordinate their increases in tax policy and massive shrinking of financial sectors.

Previously commented as Random Lurker.

I have some problem with the concept of “secular stagnation”, but first this:

“The global crisis stopped economic growth, not only in the US, but in countries far inside the technological frontier like Greece”

How is Greece “far inside the technological frontier”? Do they not have iPhones in Greece? I think that there is a big difference between a country where high technology is not available (say, soviet countries) and a situation where most high tech production is made in some place (e.g. Germany) and in other places only low tech production happens. In the second situation we just have a core and a periphery, but the periphery is not “underdeveloped”, it is just a geographical distribution of industry.

Second, about “secular stagnation”, as far as I can understand the theory behind secular stagnation is this: in boom times, a capitalist economy is not static, but expands continuously building new factories etc.
Let’s say that the total product (NDP) of the economy is 100$; of this, 70$ goes to workers (who consume everything), and 30$ goes to owners. Owners consume only 20$ of the 30$ that they get, because they have an higher saving preference than workers, thus the economy is producing 100$ of stuff but consuming only 90$: underconsumption crisis!
But the owners actually reinvest the last 10$ by building new factories, hence the last 10$ become the wages of the workers who are building the additional factories, and the consumption crisis is avoided, however in the next iteration of the process more factories will be active, more workers will have to work, and more new factories will be added.

If for any reason new factories are not built, an underconsumption ensues, unless the 10$ that the owners are saving end up financing consumption, hence an increase of total debt can avoid an underconsumption crisis for a while.

The idea of secular stagnation is that, for technological reasons, no new factories are built, and thus there is either an underconsumption crisis or a continuous increase of debt.
But, what are these technological reasons? Some hypothesis that seem bunk to me:

1) Consumers are so satiated that they don’t want to buy new stuff (news to most inhabitants of the world);
2) New technologies create an economy that is less capital intensive in proportion to output (I don’t see this);
3) There are no new technologies so that old capital goods don’t become obsolete, thus no new factories are built (hard to prove this);
4) We are just too close to maximum production to create new factories (but this should happen always unless we assume that up to the 70s the economy was always below potential, that sounds a bit strange).

However, it seems to me that there is also a non technological reason that might cause an excess of savings relative to the new factories built, and it is:

5) If the wage share of the economy falls, the share of NDP that must be absorbed by new investment (or channeled into consumption by creating debt) rises, because this “warranted investment” part depends on the profit share.

Thus a low wage share can cause by itself the effect of a “secular stagnation”, without the need for weird hypothesis about technology (plus we know that the fall in the wage share is a real phenomenon).

The reference to secular stagnation and technology is more insidious under the current situation. That is because it’s not being used primarily as an explanation of lower growth, but as an excuse for increased in inequality.

That’s why I took such exception to dsquared’s defense of the finance industry as mere bystanders. It’s not only factually incorrect, it undermines corrective action. If, in fact, we live in a oligarchy dominated by finance (and many mainstream polysci types think we are) then gov’t policy is merely a reflection of the oligarch’s preferences. Blaming the gov’t is really blaming the oligarchs. And fixing the gov’t is really breaking up the oligarchy.

The whole project of those captured by finance is too make our troubles unrelated to policy: there’s nothing we could have done about the decline in growth or the rising inequality. There are other alternative exogenous explanations for our problems than technology, but typically the authors have the same goal — the situation is not of our making. Cowen is an extreme example of this type of troll and worth every penny the Koch’s pay him.

@reason 6

But the world as a whole is a closed economy, and the wage share is falling more or less everywhere (in China, for example, real wage rose because of rising productivity, but as a share of the economy, they fell).

@T 7
But why specifically financiers? How are financiers more guilty than, say, German or Chinese manufacturers that increase production without increasing wages?

@9
I’d certainly argue the Chinese exports were an effect, not a cause. How did they become an export platform? How did they get into the WTO?

Has anyone stumbled across someone making the argument that secular stagnation is in fact the final crisis of capitalism – that is Marx’s idea that eventually the system will run out of its productive potential? I haven’t found anyone making that argument, which I find strange, but I’d be interested to see one.

Brett @ 3 “You… need another World War 2 level reshaping event … AND the rise of strong progressive governments across the developed world to coordinate their increases in tax policy and massive shrinking of financial sectors.”

There I fixed it for you. It appears to me that we already have a world wide reshaping event in global climate change. And the call for the rise of strong progressive governments and a strategy for achieving them was made in 1848 in response to the reshaping event of the industrial revolution and the rise of capitalism. I guess the point for me is why are our best and brightest intellectuals and teachers, as represented here, not arguing about how to achieve the goal of strong progressive governments. Instead, we have stultifying bickering about historical minutia or almost “scholastic” arguments about how to tinker with existing political and economic structures in order to preserve what is already lost.

I read the postings on this site because I believe that intellectual discourse and those who spend their life’s energy trying to wring truth out of history can lead us to answers…I find however that there is no agreement on the questions.

Gary @13: You might start with http://insurgentnotes.com/ and with Elliott Eisenberg’s “Living with Crisis” Facebook page: https://www.facebook.com/elliott.eisenberg/posts/10205076467049139.

Waiting for Godot. My thought also – the world wide reshaping event is (pretty obviously, I believe) global climate change.

However, I expect the exact opposite of a “rise of strong progressive governments” to occur. The dire effects of global climate change will instead, I believe, lead to the rise of fascist and extremely belligerent governments across the world, very much including the developed world (and right here in the good old USA, too).

In an alternate reality without global climate change I’m not sure I’d even give 50/50 odds of “a rise of strong progressive governments” in the near term primarily because the rightwing variety is far the easier path to take, not least due to the fact that rightwing governance is the preferred mode of most oligarchs/plutocrats. We’re only Hillary Clinton losing next November away from near-total rightwing political dominance here as it is.

In actual reality, where global climate change is happening? A very grim future, with police states and military actions to dwarf the 20th century’s becoming the norm as humanity fights massively within and across borders to secure dwindling resources, especially the basics of food and water. Wage inequality and a bloated, unproductive financial sector will pale by comparison.

Darkly dystopian, sure. But the world is not going to sufficiently cut back on fossil fuels until it’s far too late (I think it very well may be already) and I don’t see how we get through the coming decades without half destroying ourselves dealing with the deleterious effects of global climate change. What’s on the other side of that, say 50-75 years from now? I don’t know – A Canticle for Leibowitz, maybe? A rise of strong progressive governments? It would be pretty to think so, but…

I went through all the candidate explanations for a UK thinktank earlier this year. Unaccountably, the editor who had to go through removing two dozen references to “smurves” did not hunt me down and kill me. NESTA is a great think tank.

Wolfgang Streeks new book ‘Buying Time’, which makes a similar argument (or at least comes from a similar perspective), might be worth looking at

ie

http://newleftreview.org/II/87/wolfgang-streeck-how-will-capitalism-end

and

http://newleftreview.org/II/71/wolfgang-streeck-the-crises-of-democratic-capitalism

@23

“…the experiences of all inform the results.”

@Collin Street 19
I don’t think this is just a problem of terminology.
In short, I think that there are two different situations:
1) some countries, like China for example, were out of the world capitalist economy until recently, they have a very outdated technology, and are currently playing catchup. From the point of view of secular stagnation, there is still growth to be expected there.
2) some other countries, like Europe taken as a whole, are already at the top of technology scale, hence we cannot expect catchup. In these countries however, for whatever reason industries are not evenly distributed on the territory, but tend to be clustered in some limited areas. For example if we take automakers, Europe as a whole produces already a lot of cars, but those automakers are clustered in central Europe. If Greece has to have a new automaker, this new automaker will not come as an addition to older ones, it can only grab market share from other European automakers, so there is not aggregate growth to be expected, which from the point of view of secular stagnation makes a lot of difference.
Hence from my point of view Greece is not behind of Germany on technology, it just happens that technology is already at the top in Europe as a whole but some areas of Europe get more advantages from technology than others.
Another example is Google, that in some sense is at the top of technology. But the scale of production of Google is so big that it makes no sense to expect every nation to develop its own Google. But as Google has a worldwide scale, it would be strange to say that the USA are more advanced than France or Greece because Google is located in the USA and not in France or Greece. This is not a problem of terminology, the point is that we don’t expect France or Greece to develop their own Google, and for the same reason we shouldn’t expect Greece to develop its own automakers, as automakers scale of production already surpassed the size of all European countries.

Re the end-of-capitalism stuff:
Of course Wallerstein is another who thinks that this is a hinge or transition period to a new kind of system, though he doesn’t think it will nec. be better, nor does he, afaik, use the phrase “secular stagnation,” though aspects of the argument may incorporate it w/ different language.

@T
Thanks, I’ll take a look at the links.

@31 Reich seems to be explaining inequality as the result of monopoly *rents*; Piketty argues that the return of *rentier society* is perfectly compatible with competitive markets especially if demographic growth slows over the next few decades.

I wonder if T is a prime example of the left suffering from “learned helplessness” by absorbing the naturalistic fallacy inherent in “Austrian” economics.

20: “There is technology that is in use in australia that is not in use in greece”

Our of curioisty, what is that technology?

10, 28, 30: It is an annoying mistake to say something like “GDP is down” or “productivity is down” when what is meant is that the rate of incrase of GDP or productivity is down. Very misleading but very common.

Piketty’s rent generalizes from the idea of a landed aristocracy’s passive receipt of income in virtue of its possession of land to the coupon-clipper of the fin de siécle to today’s rentier who passively enjoys income as profits, interest, royalties, etc. simply in virtue of his or her capital or wealth now in the form of real estate, stocks, bonds, patents. Piketty argues that the income from capital or wealth (terms that he uses interchangeably) will rise as a percentage of total income, that income especially in the top centile will increasingly be dominated by rent as he defines it (Balzac’s rentiers derived income from ownership of landed estates and government bonds; today’s rentiers have a more diversified portfolio), and that the wealth that generates these enormous incomes will increasingly be inherited. The rentier can ascend even if the market is competitive. Monopoly rents as Robert Reich are describing is not the long-term source of widening inequality.
An additional note: Piketty argues that today’s rentier is not necessarily as inflation-phobic as some have assumed.

I don’t see why there should be any causality between productivity growth and inequality. But curious to hear T’s explanation.

Incidentally I recently learned that Switzerland the last 40 years has had “weak” productivity growth (*) compared to OECD. Provided these statistics are reliable, maybe productivity growth isn’t such a desirable thing after all. I’m happy to take full employment and the world’s highest standard of living over productivity growth.

(*) The OECD report at http://www.oecd.org/switzerland/economic-survey-switzerland.htm is another example of the Washington consensus in action: here you have an economy performing extremely well by any standards, and what are the OECD going to recommend? You guessed it, privatization, deregulation, and austerity.

Piketty is not quite a theorist of secular stagnation. He needs for gg allows for rentiers to amass wealth faster than income is growing as a result of productivity and demographic growth, and as long as the marginal rate of substitution of capital for labor does not fall sharply–and here Piketty has been challenged– the share of income from capital will rise, giving rise to a more unequal functional distribution of income. Moreover, given that wealth is already concentrated, the top centile in particular will likely own a greater share of wealth and derive increasingly enormous incomes from ownership (even super-managers whose income presently comes from “labor” will find their capital growing and even their own incomes, much less their heirs, coming increasingly from their expanding wealth holdings).

oops that was my mistake
g<r
…now running to work.

Bruce Wilder @40
I see Tyler Cowen as the economic blogosphere’s answer to David Brooks (i.e. a Spinnmeister). Every laughs at David Brooks now – why isn’t everybody laughing at Tyler Cowen making nonsense arguments.

Metatone @46
Yes.

@23 & 26

Thanks for that – I’ve not heard of Wolfgang Streeck before but his stuff looks interesting and is definitely in the area that I was looking for!

@LFC (29)

Yes, Wallerstein was one that I had in mind. Some of his passages in Historical Capitalism do come very close in discussing much of what the proponents of the secular stagnation hypothesis talk about, though he himself doesn’t use the term. Of course Wallerstein has been predicting the downfall of capitalism for a while now, but interestingly his thoughts on what will come after have swapped from being very optimistic (socialist world-system) to very pessimistic (some sort of quasi-feudal order) in recent years.

I have a vulgar Marxist or vulgar Keynesian view of “secular stagnation.” As Professor Quiggin says, it’s nothing that new. Things change but there are similar dynamics.

As Quiggin said, government macro policy worked in Australia. It can work but is being blocked by politics. Inequality is leading to bad politics and hence policy in a vicious circle.

After WWII, there was a virtuous circle as Keynesian policy led to rising incomes which led to sustainable growth without volatile debt cycles – more or less. Recessions were met with adequate macro policy to keep things going, unlike today.

Quiggin starts with the dotcom bubble which led to unsustainable growth and job creation mediated by the financial sector. Policies for the recovery morphed the dotcom bubble into the unsustainable housing bubble. After the bubble popped, macro policies weren’t enough to provide a quick recovery and return to trend. Instead we got hysteresis as bad politics forced austerity on the economy coupled with inadequate if massive monetary policy.

Inadequate macro (fiscal, monetary, trade) policy leads to slowing, growth. And somehow Piketty’s rentiers are able to keep their returns and profits high despite slowing growth and slowing producitvity. No doubt part of this is monopoly rents and political “interference” in the market, like patents. How much of it is financial sector parasitism?

Politics blocks adequate fiscal or monetary policy as trumped up fears of inflation and government debt restrain government investment and central banks.

I think the way around this scare-mongering is Corbyn’s People’s QE, “cold fusion,” or Adair Turner’s monetary financing.

Already the new speaker Paul Ryan and Democratic legislators are getting into the game:

http://www.nytimes.com/2015/12/02/us/politics/bipartisan-talks-yield-dollar300-billion-highway-bill.html

“….
Some of the money will come from the Federal Reserve. The bill cuts the Fed’s annual dividend payments to large commercial banks, redirecting that money to highway construction. It also drains money from the Fed’s rainy-day fund.

The banking industry opposed the dividend cut, but won only a partial victory. The Senate voted to replace the current 6 percent dividend with a 1.5 percent dividend. The final version instead ties the dividend to the interest rate on 10-year Treasury bonds, currently 2.2 percent, up to a maximum of 6 percent.

The bill also requires the Fed to fork over $19 billion from a rainy-day fund that has ballooned to $29 billion in recent years. The size of the rainy-day fund also would be limited to $10 billion.

A Fed spokesman declined to comment, but Fed officials have previously criticized both the dividend cut and the draining of the rainy-day fund, arguing Congress should not use Fed funds to bankroll specific programs.
….”

Reason

“The situation not being of our making (it is cold today) does not imply that there is no policy solution (we can put warm clothes on).”

If it’s getting dangerously colder for man-made reasons, we know how to fix that. That’s different than putting on a coat.

And what it it with all this psychoanalyzing crap? Colin Street appears to think everyone he disagrees with is mentally ill with his repeated references to Asperger’s and you think people who disagree with you are suffering from “learned helplessness.”

@LFC (54)

In an article entitled ‘Globalization or the Age of Transition?’ he says a similar thing, that the capitalist system is going to collapse and that there are two possibilities for what comes next, one leading to a more equal system and one leading to an entrenching of the current inequalities of the system, within countries and between them (North-South divide), and an exacerbation of them. IIRC he says he doesn’t know which one will come, but he leans towards the more pessimistic vision being more likely (he says something broadly similar in Capitalist Civilization).

The article can be found here: http://ross.mayfirst.org/files/wallerstein-globalization_0.pdf

As far as the topic goes, Yomtov above (kowaii!) asked about the end of the hegemony, and I have been thinking on that all day. Fact is, HRC or any other Democrat is extremely unlikely to be able to guarantee abortion rights in rural Texas, or fix unions in Wisconsin or Indiana, or provide health insurances exchanges in Alabama. The impotence and irrelevancy of Democrats (I won’t speak for Republicans here) and their ideology on a local level is becoming glaringly obvious. Blaming Republicans doesn’t really seem to help, and no improvement is on offer. California, Mass, wherever may be nice Dem states, but they would likely be so in any case, and local conditions and local politics are what is important in implementing the national policies. Thus, hegemony fail and centrifugal politics.

I’ve advanced this hobby horse a bit in the previous discussion, but it does seem relevant here. We know of technologies that could improve the lot of human beings if they were invested in more – renewable energy tech. However, money isn’t piling in to the extent you might expect. (i.e. compare the money in that industry with that in other parts of the energy industry.)

Why is this the case? I don’t see it fitting into Cowen’s thesis.

To me it appears to be that the benefits don’t monetize easy. Poor people in poor parts of the world would benefit a lot, but how does that help monetization? Rich people in rich parts of the world benefit too, but largely in an abstract “public goods” way. So where does the investment case go from there?

I think that rich nations and poor ones both benefit from moving away from fossil combustion. All nations share one planetary atmosphere.

I think that the benefits don’t monetize easily because of relatively low barriers to entry and robust competition. You can take a design for a new kind of solar module or wind turbine from laboratory to commercial product for much less than the cost to develop a single new deep offshore oil project or build one nuclear reactor prototype. Even the solar companies that still survive don’t realize very high margins. The ROI on making solar products is lower still when you include those manufacturers that went bankrupt. No company has been able to realize dramatic differences from its competitors on the basis of natural monopolies, patents, or even government lobbying. They’re all selling commodities, usually on the basis of a handful of metrics, with modest implementation differences.

The good news is that it’s hard to monopolize renewable energy or extract monopoly-sized profits from it. The public is getting cost savings passed on to it every year as renewable energy technology improves. The bad news is that investors will keep chasing higher-risk, higher-profit-potential schemes if “build more solar farms” or “build more solar hardware” can’t offer monopoly money. The good news (2) is that investors make can still be delusional and value renewable energy companies higher than reasonable, just as with other companies. So you might e.g. get people investing in SolarCity because of the Elon Musk mystique, even though AFAICT there is nothing special enough to justify its valuation.

T @55
Again I don’t understand the point. It makes no difference if I can fix the cause or not, if I have a policy tool to fix the problem. And as for the divergence to global warming, seen from a longer term perspective we are entering approximately a period when we might expect (if we weren’t interfering with the climate) a new ice age. So it could be that one way or the other we need climate managing policy initiatives. I really do think you are suffering from an art of learned helplessness – policy initiatives are not tabu. It doesn’t matter in the least whether the problem is caused by us or not, we can do something about it. In fact, if the problem is exogenous, it strengthens the argument for doing something about it, because it means it is not a result of the systems optimal response (although optimal in what sense is an issue of course), so we will not be counteracting that.

T @55
To use a more complex analogy, think of fever. Fever is the bodies optimal response to a microbial invasion, but has side effects that can endanger the body itself. Interfering with the symptom of a higher body temperature is not a good idea, but stopping the person from freezing (blanket), and maintaining body fluids (warm drinks) is however a useful response.

Yes, it is useful to identify the cause of the problem, but that doesn’t mean we shouldn’t act.

Personally, I’m a national dividend guy (basic income if you like), because I think the micro-economics and the level of security it provides are much better than alternative approaches, despite John Quiggin’s misgivings. And such a solution scales – it works regardless of what the source of the problem is, including technological change. The best approach to poverty (or even stagnation) is giving money to poor people.

T @66
Yes but this is all irrelevant to my point, which is that Tyler is talking nonsense and should be called on it, clearly and simply. (And forget the “supply side” nonsense – it has nothing at all to do with the supply side – infrastructure and education spending would do much more for the supply side than tax cuts, and that is clearly in the data).

“If the cause is untreatable, you’re left with just treating the symptoms. ”

Listen – I think has a value judgement that I simply can’t agree with. Treating the cause and treating symptoms have the same effect, improving the lives of the people affected. In the case of the economic system (which is an artificial human construct) the wellbeing of the people is the only reason for its existence. There is no other justification. So whether I’m treating the cause or the symptoms is not important, what is important is that people’s lives are improved. (By the why this holds just as well for a medical analogy). There is no “JUST” treating the symptoms, the symptoms are what matters, it is just that treating the cause is sometimes more effective.

One obvious example is the reversibility of treating the symptoms when the cause still persists.

There’s also the whole “new normal” thing, where people who might oppose a change are distracted from the politics of reversing the policy to some kind of futile efforts at amelioration of the consequences. The futile efforts at amelioration may acquire lots of status satisfaction for those who engage their energies that way, which then tends to anchor the policy in conservatism, as the ameliorations and palliative care are valued for themselves.

The propaganda line that emphasizes “causes” that are “natural” and “inexorable”, such as amorphous technological trends, or the neoliberal line that there is no alternative to the policy of austerity, are setups for futile amelioration. People feel bad about a world of such cruelty, but they bolster their self-esteem by protesting that Black Lives Matter (no justice! no shopping!) or charity fundraising activity — we’re going to a benefit concert for [fill in the blank] — and so on. Disappointed in President Lesser Evil’s response to global warming? Buy an LED light bulb! Drive a Prius! (But, let’s get the model with a little better acceleration; who said socially conscious cannot be fun!).

T @70
” However, that’s easily reversed by changing the tax law, leaving the cause in place. I’m sure you can think of many other examples.”

Yes and no. The economic system is more complex than that formulation takes it to be. There are positive feedback loops so that inequality feeds more inequality or vice versa. Reversing the symptoms will for a long time also change (at least some of) the causes.