An abundance of wealth and a scarcity of capital: resolving the paradox

One of the major economic phenomena of our time seems to be an enormous accumulation of elite wealth amidst rising inequality within nations, even while output and productivity growth, particularly since the Great Recession, have been mediocre across much of the world.

In his book Capitalism without Capital, Alan Shipman draws together a wealth of economic ideas, from the theory of the global savings glut and the Cambridge controversies in the theory of capital to Thomas Piketty’s writings on inequality, to argue that we are living in an era of abundant ‘wealth’ alongside a shortage of real productive capital assets. It is growth in the latter which remains the driver of rising living standards for the majority. Continue reading

Heiner Flassbeck on the global economy: the problem of Europe

In the video below from the Real News Network, former economist at UNCTAD, Heiner Flassbeck, discusses some of the problems besetting today’s global economy and claims that they have deep historical roots. Germany may be heading for a recession due to shrinking exports linked to the ongoing US-China trade war and weak demand in Europe.

Flassbeck argues that the cause of sluggish global demand lies in the weakness of corporate investment compared to corporate saving alongside stagnant wages and the insufficient response of governments in Europe to counter this with more expansionary fiscal policy.

This has been brewing since the 1970s. The US under Reagan, Bush junior and most recently Trump has on a number of occasions responded to sluggish growth with higher fiscal deficits. The exception came under Clinton, when a booming economy and fiscal tightening produced several years of budget surpluses, which ultimately proved unsustainable.

In contrast, many European economies have remained wedded to tighter fiscal policies and austerity in the run-up to the creation of the euro. Since 2000 Germany has relied on foreign demand to drive growth, and now runs, in absolute terms, the largest current account surplus in the world.

Corporate surpluses are also excessively large in Japan, but the government continues to run a moderately large budget deficit which absorbs some of these savings and sustains aggregate demand to a degree. The German government is now running a budget surplus, which withdraws demand from the economy, leaving net exports as the driver of growth.

Ideally, corporations would use more of their retained earnings for investment, rather than running up surpluses as they are doing at the moment, particularly in Germany. This would increase spending on the demand side, and the capital stock on the supply side, boosting growth in output and some combination of employment and productivity.

In the absence of strong corporate investment growth, sufficient demand to support economic growth has to come from household consumption, net exports, or from the government. With insufficient household income growth, Germany has relied excessively on growth in exports enabled by sluggish wage increases for twenty years. In a weakening global economy, it is now suffering again and could be on the brink of recession.

A more sustainable return to healthy economic growth and fuller employment with rising living standards would see household incomes rising for the majority through significant wage increases, stimulating consumption and providing greater incentives for companies to increase investment in new capacity and employment. Also needed is some degree of fiscal expansion which includes public investment in necessary infrastructure and support for those on the lowest incomes.

The corporate sector surplus (the excess of savings over investment) in a number of large economies needs to shrink as wages and household incomes rise alongside corporate investment. This would lessen the need to rely on large and persistent fiscal deficits, which have supported demand in Japan on and off for well over two decades but have not by themselves created the conditions for a return to more balanced economic growth over the longer term. It would also lessen the need for consumption to be excessively dependent on rising debt, as in the UK and US.

More balanced global growth and reduced inequality within countries which have seen the latter soar since the end of the 1970s can be achieved together.

Flassbeck does not really discuss the reasons behind excessive corporate savings relative to investment, aside from a brief reference to neoliberalism, and he ignores the problem of private debt in China, but the interview is interesting and worth a watch.

Where to Invade Next – social progress and a productive economy

WhereToInvadeNextI have ‘enjoyed’ (if that is the appropriate word) much of the work of US filmmaker Michael Moore. He tirelessly aims through this work and beyond it to campaign for a more progressive society and politics. He tries to entertain, inform and persuade. I often get the feeling when watching his films that he is preaching to the converted, but I still find myself learning something new.

His 2015 offering Where to Invade Next sees him visiting various countries around the world, mainly in Europe but also elsewhere, exploring aspects of their culture which as an American ‘liberal’ he admires more than the home-grown alternative. For each aspect, he plants the stars and stripes, indicating his ‘invasion’, and vows to steal the particular idea and take it back to the US. Continue reading

Robert Reich: the four biggest right-wing lies about inequality

I like Robert Reich’s short, entertaining and informative videos. While some of the ideas he presents are simplified, perhaps this is necessary to communicate them to a wider audience.

This one makes a good case that we don’t have to accept today’s levels of inequality as a price to pay for future prosperity. In fact, for ordinary workers in the US, real wages are barely higher than they were forty years ago, while since 1980 incomes and wealth at the top have soared. At the same time, investment and growth rates have fallen, apart from a brief revival in the late 1990s. It has been prosperity for some, but not for most.

David Harvey on the persistence of neoliberalism

David Harvey is a distinguished professor of Anthropology and Geography at the City University of New York Graduate School. He has written extensively on aspects of Marxist political economy, including a number of popular books and guides to Marx’s Capital.

In the first part of this interview with the Real News Network he discusses the persistence of neoliberalism despite its manifold failures.

‘The left must fight for a real Brexit’ – an interview with Costas Lapavitsas

lapavitsasCostas Lapavitsas is a Professor of Economics at SOAS in London and a long-standing critic of the EU. His recent book, The Left Case Against the EU, is an interesting and provocative read, whatever your political orientation.

In this short interview, he argues for a No Deal Brexit from a left perspective, as well as political and economic transformation in countries across Europe that benefits ordinary working people via public ownership of the banks and utilities, industrial policy and redistribution, alongside increased popular and national sovereignty and democratic accountability. Continue reading