{"id":26903,"date":"2013-02-09T21:09:25","date_gmt":"2013-02-09T20:09:25","guid":{"rendered":"http:\/\/feedproxy.google.com\/~r\/Truthdig\/~3\/RlooHiqcbbY\/"},"modified":"2013-02-09T21:09:25","modified_gmt":"2013-02-09T20:09:25","slug":"productivity-compound-interest-and-poverty","status":"publish","type":"post","link":"http:\/\/rinf.com\/alt-news\/breaking-news\/productivity-compound-interest-and-poverty\/","title":{"rendered":"Productivity, Compound Interest and Poverty"},"content":{"rendered":"
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Productivity, Compound Interest and Poverty<\/h2>\n
\"Email Email<\/span> \u00a0 \"Print Print<\/a> \u00a0 \"Share Share<\/span><\/div>\n
Posted on Feb\u00a09,\u00a02013<\/h6>\n\n\n\n\n
\"\"<\/span><\/td>\n<\/tr>\n
ISLET<\/span><\/td>\n<\/tr>\n
<\/td>\n<\/tr>\n<\/table>\n

Michael Hudson is Distinguished Research Professor of Economics at the University of Missouri, Kansas City and President of The Institute for the Study of Long-Term Economic Trends (ISLET). This is the first chapter of his book \u201cFinance Capitalism and its Discontents<\/a>,\u201d published by ISLET in November 2012.<\/em><\/p>\n

Suppose you were alive back in 1945 and were told about all the new technology that would be invented between then and now: the computers and internet, mobile phones and other consumer electronics, faster and cheaper air travel, super trains and even outer space exploration, higher gas mileage on the ground, plastics, medical breakthroughs and science in general. You would have imagined what nearly all futurists expected: that we would be living in a life of leisure society by this time. Rising productivity would raise wages and living standards, enabling people to work shorter hours under more relaxed and less pressured workplace conditions.<\/p>\n

Why hasn\u2019t this occurred in recent years? In light of the enormous productivity gains since the end of World War II \u2014 and especially since 1980 \u2014 why isn\u2019t everyone rich and enjoying the leisure economy that was promised? If the 99% is not getting the fruits of higher productivity, who is? Where has it gone?<\/p>\n

Under Stalinism the surplus went to the state, which used it to increase tangible capital investment \u2014 in factories, power production, transportation and other basic industry and infrastructure. But where is it going under today\u2019s finance capitalism? Much of it has gone into industry, construction and infrastructure, as it would in any kind of political economy. And much also is consumed in military overhead, in luxury production for the wealthy, and invested abroad. But most of the gains have gone to the financial sector \u2014 higher loans for real estate, and purchases of stocks and bonds.<\/p>\n

Loans need to be repaid, and stocks and bonds receive dividends and interest. For the economy at large, people are working longer just to maintain their living standards, which are being squeezed. Women have entered the labor force in unprecedented numbers over the past half-century \u2014 and of course, this has raised the status of women. Mechanization of housework and other tasks at home has freed them for professional life outside the home. But on balance, work has increased.<\/p>\n

What also has increased has been debt. When World War II ended, John Maynard Keynes and other economists worried that as societies got richer, people would save more. For them, the problem was to keep market demand high enough to buy all the output that was being produced.<\/p>\n

And indeed today, markets are shrinking in many countries. But not because people are saving out of prosperity. The jump in reported \u201csaving\u201d in the National Income and Product Accounts (NIPA) in recent years has resulted from repaying debts. It is a negation of a negation \u2014 and hence, a statistical \u201cpositive.\u201d<\/p>\n

Paying off a debt is not the same as building up liquid savings in a bank. It reflects something that only a very few economists have worried about over the past century: the prospect of debts rising faster than income, leading to financial crashes that transfer property from debtors to creditors, and indeed polarize society between what the Occupy Wall Street movement calls the 1% and the 99%.<\/p>\n

What also was expected universally fifty years ago \u2014 indeed, until about 1980 \u2014 was that governments would play an increasingly important economic role, not only as forward planners but as direct investors in infrastructure. To Keynesians, government spending served to pump money into the economy, maintaining demand and employment in cyclical downturns. And for hundreds of years, governments have undertaken basic infrastructure spending so that private owners would not use monopoly privileges to charge economic rent.<\/p>\n

Nearly all observers expected the fruits of technology to trickle down, not be siphoned up to the top, to the banking sector whose \u201cfinancial engineering\u201d played no directly technological role in the production process. Textbook models describe \u2014 or rather, assume \u2014 that rising productivity will be passed on to labor in the form of lower prices (reflecting falling costs of production, enabling wages to buy more) or, if prices are \u201csticky,\u201d higher wages.<\/p>\n

According to what the textbooks called Say\u2019s Law, there is a circular flow between producers and consumers. Workers must be able to buy the results of what they produce. This correlation between output and consumption goes back to the Physiocrats prior to the French Revolution, who created economics and account keeping. Their founder, Fran\u00c3\u00a7ois Quesnay, was a medical doctor and a surgeon. He created the basic format of national income accounting on the analogy of the circulation of blood within the body. An increase in production had to find its counterpart in increased consumption, creating its market by paying workers who spent their wages on buying the products they produced.<\/p>\n

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\n

Productivity, Compound Interest and Poverty<\/h2>\n
\n\"Email Email<\/span>    \"Print Print<\/a>    \"Share Share<\/span>\n<\/div>\n
Posted on Feb 9, 2013<\/h6>\n\n\n\n\n
\"\"<\/span><\/td>\n<\/tr>\n
ISLET<\/span><\/td>\n<\/tr>\n
<\/td>\n<\/tr>\n<\/table>\n

Michael Hudson is Distinguished Research Professor of Economics at the University of Missouri, Kansas City and President of The Institute for the Study of Long-Term Economic Trends (ISLET). This is the first chapter of his book “Finance Capitalism and its Discontents<\/a>,” published by ISLET in November 2012.<\/em><\/p>\n

Suppose you were alive back in 1945 and were told about all the new technology that would be invented between then and now: the computers and internet, mobile phones and other consumer electronics, faster and cheaper air travel, super trains and even outer space exploration, higher gas mileage on the ground, plastics, medical breakthroughs and science in general. You would have imagined what nearly all futurists expected: that we would be living in a life of leisure society by this time. Rising productivity would raise wages and living standards, enabling people to work shorter hours under more relaxed and less pressured workplace conditions.<\/p>\n

Why hasn’t this occurred in recent years? In light of the enormous productivity gains since the end of World War II – and especially since 1980 – why isn’t everyone rich and enjoying the leisure economy that was promised? If the 99% is not getting the fruits of higher productivity, who is? Where has it gone?<\/p>\n

Under Stalinism the surplus went to the state, which used it to increase tangible capital investment – in factories, power production, transportation and other basic industry and infrastructure. But where is it going under today’s finance capitalism? Much of it has gone into industry, construction and infrastructure, as it would in any kind of political economy. And much also is consumed in military overhead, in luxury production for the wealthy, and invested abroad. But most of the gains have gone to the financial sector – higher loans for real estate, and purchases of stocks and bonds.<\/p>\n

Loans need to be repaid, and stocks and bonds receive dividends and interest. For the economy at large, people are working longer just to maintain their living standards, which are being squeezed. Women have entered the labor force in unprecedented numbers over the past half-century – and of course, this has raised the status of women. Mechanization of housework and other tasks at home has freed them for professional life outside the home. But on balance, work has increased.<\/p>\n

What also has increased has been debt. When World War II ended, John Maynard Keynes and other economists worried that as societies got richer, people would save more. For them, the problem was to keep market demand high enough to buy all the output that was being produced.<\/p>\n

And indeed today, markets are shrinking in many countries. But not because people are saving out of prosperity. The jump in reported “saving” in the National Income and Product Accounts (NIPA) in recent years has resulted from repaying debts. It is a negation of a negation – and hence, a statistical “positive.”<\/p>\n

Paying off a debt is not the same as building up liquid savings in a bank. It reflects something that only a very few economists have worried about over the past century: the prospect of debts rising faster than income, leading to financial crashes that transfer property from debtors to creditors, and indeed polarize society between what the Occupy Wall Street movement calls the 1% and the 99%.<\/p>\n

What also was expected universally fifty years ago – indeed, until about 1980 – was that governments would play an increasingly important economic role, not only as forward planners but as direct investors in infrastructure. To Keynesians, government spending served to pump money into the economy, maintaining demand and employment in cyclical downturns. And for hundreds of years, governments have undertaken basic infrastructure spending so that private owners would not use monopoly privileges to charge economic rent.<\/p>\n

Nearly all observers expected the fruits of technology to trickle down, not be siphoned up to the top, to the banking sector whose “financial engineering” played no directly technological role in the production process. Textbook models describe – or rather, assume – that rising productivity will be passed on to labor in the form of lower prices (reflecting falling costs of production, enabling wages to buy more) or, if prices are “sticky,” higher wages.<\/p>\n

According to what the textbooks called Say’s Law, there is a circular flow between producers and consumers. Workers must be able to buy the results of what they produce. This correlation between output and consumption goes back to the Physiocrats prior to the French Revolution, who created economics and account keeping. Their founder, François Quesnay, was a medical doctor and a surgeon. He created the basic format of national income accounting on the analogy of the circulation of blood within the body. An increase in production had to find its counterpart in increased consumption, creating its market by paying workers who spent their wages on buying the products they produced.<\/p>\n

\n1<\/span>   2<\/a>   3<\/a>   4<\/a>   5<\/a>   NEXT PAGE >>><\/a><\/span><\/p>\n

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Get truth delivered to
your inbox every week.<\/p>\n<\/div>\n<\/div>\n

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Previous item: The World Until Yesterday<\/a><\/p>\n

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