From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Fri Dec 28 2007 - 11:49:02 EST
Patrick,
I would broadly agree with a) and c) but not necessarily with b). In Australasia, the fluctuating interest rates remained relatively high, causing an influx of "carry trade" money, but interest rates in the US, Europe and Japan reduced strongly some time after the second oil shock, a deflationary regime was operated, and with the deregulation of international capital markets, you could borrow cheap money all over the world. You can easily find time series data to support this thesis.
For US time series see e.g. http://research.stlouisfed.org/fred2/categories/22 or http://www.federalreserve.gov/
For EU time series see e.g. http://www.ecb.int/stats/money/long/html/index.en.html or http://europa.eu.int/estatref/info/sdds/en/irt/irt_h_base.htm
Germany e.g. http://www.bundesbank.de/statistik/statistik_zeitreihen.en.php?open=zinsen
Japan e.g. http://www.economagic.com/bjap.htm#Interest http://www.boj.or.jp/en/theme/research/stat/index.htm
A group of countries http://www.economicswebinstitute.org/glossary/interest.htm
The simple point implied by Holland's remark is, that if interest costs reduce, then this is itself a "counteracting influence" to longterm declines in the average industrial profit rate (i.e. it can partly offset declines in the average rate of return on capital). But this point is often not noticed in the Marxist literature, because it doesn't deal very much with capital finance (as Doug Henwood pointed out also). It is mathematically quite possible for a lower interest rate to combine with a higher net interest volume, obviously, if the lower interest rate means that borrowing increases.
If however it becomes impossible to sustain the deflationary regime, and interest rates rise, this impacts negatively on the industrial profit rate, and often carries recessionary implications. The macroeconomic financial problem in our era is really "how do you keep interest rates down, without this generating speculative bubbles and dubious lending rackets that get out of control, wildly distorting economic fundamentals".
The subprime crisis is only one facet of a bigger problem of other lending rackets, including within the mortgage business itself (think e.g. of pay-option adjustable-rate mortgages, or option ARMs as they are called, see on this http://www.latimes.com/business/la-fi-optionarm28dec28,0,4900304.story?coll=la-home-center ).
The provisional policy answer to that financial problem, seems to be to operate a stricter, more conservative lending regime from now on. In turn, this has the effect, however, that it reduces risk-taking entrepreneurship in world capitalism all round. And that means, other things being equal, that investment projects which expand production and create more jobs longterm are less likely to be started up. You just get a more conservative economy with sluggish economic growth out of that, in aggregate, and the fundamental economic problems are not solved, or only tackled piecemeal.
Effectively, a lot of govt economic policy nowadays consists of "buying time" and you hope that, in the meantime, economic adjustments can be made which gradually turn things around. But it's hardly a bold vision of the future, it is saying to people, that you simply cannot expect things to improve greatly in the short term. Which is really saying that you have to make do with less, meantime, that you have to be "realistic" and lower your expectations of what can realistically be achieved ("we've come so far"). It's not so much "capitalism unleashed", as "capitalism with the brakes on". The "unleashing" is mainly that capital which was placed here is now placed there. The policy makers cannot agree about what to do about global warming, but they have difficulty just feeding and adequately housing the people. Today's problems are effectively exported to the future.
Martin Wolf's recent article http://blogs.ft.com/wolfforum/2007/12/the-dangers-of.html#comment-94957052 is really rather banale, because he leaves out specifically who (which social classes and populations) benefit from economic growth and who don't, the central issue of political economy. "Growth is good, we are all better off, the only limit is global warming". By comparison, the IMF seems "left-wing", mentioning inequality http://www.imf.org/external/pubs/ft/weo/2007/02/index.htm . Talking inequality seems to be becoming trendy again. The bourgeois debate is however mainly a bunch of crude slogans about the classic dillemma of "the importance of creating the wealth" versus "distributing the wealth equitably". By comparison the 19th century debate was much more sophisticated.
There is a lot of talk about the "dynamic" economies of India and China, but in reality, demographically, the number of people involved in this is, relatively speaking, rather small. In reality, China with its "vast labour reserves" battles with major labour and skill shortages in many cities, driving up wages in many cases and adding to capital costs there. There was supposed to be a "huge reservoir of surplus workers" in the countryside but this turns out to be much less than anticipated. I would obviously not deny that Chinese workers earn less than US workers, it could take fifty years to catch up, but large chunk of the difference between US and Chinese or Indian wage levels of the urban industrial workers disappears, once they are valued at purchasing parity. Lower wages in China also owe a lot to the severe restrictions on collective bargaining, or wage bargaining of any sort (a lot of them don't even have any formal employment contracts). You cannot explain the inability to bargain over wages, simply in terms of pressure from a "vast reserve army of labour" (most agricultural workers are employed, not unemployed), it also has much to do with the employment policy of the government. In reality, there is an enormous dispersion of wage rates in China, mirroring socio-economic inequality elsewhere in the world. In real terms, the money-wages of skilled workers in China in the cities can be to the order of 30 times that of the lowest paid workers in the countryside, and the money-wages of unskilled workers can be 20 times the lowest paid workers. The higher wages earnt in China often aren't so very different from US industrial rates now, once purchasing parity is taken into account. The "Chinese bogey" or the "Indian bogey" is often invoked as a threat to Western wage levels, but this has to be taken with a grain of salt and the biggest "threat" there is in that area, is from Western governments and Western employers themselves.
Paul Bairoch opined "The West don't need the third world, that's the bad news for the third world". This is not quite true obviously, because the West needs the raw materials (intermediate goods e.g. minerals, fuels, foodstuffs) and selected durable manufactured goods (e.g. electronic equipment, household appliances), but the point is, that this demographically speaking doesn't employ all that many people in aggregate. You can produce a lot more, with a lot less people these days. The ILO comments for example "Widespread economic growth and increased productivity in Africa has been insufficient to reduce the growing numbers of unemployed and working poor in Africa." http://www.ilo.org/public/english/employment/strat/global.htm The estimated global number of formally unemployed (excluding underemployed) remained at an all time high of 195.2 million in 2006, and the number of working people living on US$2 a day has continued to grow in absolute terms, reaching 1.37 billion in 2006. http://www.ilo.org/public/english/employment/strat/global.htm
Haha, if I was an international economist with a sufficient budget, I would set up an integrated global database ( a sort of data warehouse) containing (comparable) statistics for all the important economic, social, cultural and demographic variables for all countries of the world, so that you can establish the true quantitative proportions of global issues at a glance, and eliminate a lot of statistical "noise" from overpaid academic people who don't do foundational studies and just skim the trend. Take, for example, labour force statistics. Whereas a lot of effort goes into computing "world GDP" (a questionable statistic for a professional statistician) we still do not have detailed internationally comparable data on the workers who actually produce that world GDP! I have some CD's full of data at home, but I can do little with them, because a lot of the time series tables in the spreadsheets are simply empty or half-empty, and detailed comparable data are lacking. Technically, we can know much more than they serve up in the media. But do they really want to know?
If we want to have fun we'll have to think of something else,
Happy 2008,
Jurriaan
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