Reality as a Harsh Mistress

Now that I'm on record for predicting the death of Neoliberalism I will now declare that it will happen sometime in the future.  If that seems like a cop-out, then so be it.  In my mind, a better question to ask addresses why it will happen.  Another might regard what will it look like.  What are the signs be that would indicate that it is indeed dying?  Does it have to die?  In one way, at least, it's an unremarkable statement to say that it will die given what it is.  Ruling ideologies come and go over the course of history, elites and other authorities get swapped out, assumptions about how things work prove not to work, and after a tumultuous decade or two, things move along.  In post war American history, and the post war history of the core industrial economic powers, a change in a ruling ideology has happened essentially once, more or less peacefully, and most people who are not historians or politically charged people wouldn't automatically point to it as one of history's grand events.

This particular grand event is generally referred to as the Reagan Revolution, or some other such name, and it ushered in the Neoliberal political-economic modus operandi.  Corporations were allowed huge tax loopholes, certain laws, like immigration laws, were unenforced, and private industry was deregulated.  Let the market figure it out, keep the meddling fingers of government out of the pie, and you will have a better outcome for everyone.  This pile of notions was set against the left liberal system which had developed according to the economic thought of John Maynard Keynes.  Politically it has been derided by Neoliberal opponents as "Big Government", "Socialism", the "Nanny State", and other such epithets, and is how most of the electorate understands it.  But peering into the economic heart of it, you can cut down the difference between them to "demand" vs. "supply", in historical order, with the demand side saying "give people money" and the "supply side" countering with "give them cheap goods and services".

The system that was significantly informed by Keynes reigned supreme from World War II to the 1970's, when stagflation and a powerful resurgence of the economic/religious conservatives via the Republican party.  It's main thrust economically was the assertion of power of financial elites to determine policy along the small, non-intrusive government thinking of Milton Friedman, who was the brain behind the Reagan Revolution.  That the continuation of Neoliberalism throughout every administration since Reagan has come to benefit financial elites is essentially what America signed up for when they elected Reagan.  In other words, it was predicted and predictable that money would go to the top, and the results are in on that score.  The slowing growth rate in the American economy has been a concurrent trend alongside the concentration of wealth at the very top, a trend that is also seen globally, and so what the rich in the end have bought themselves is a rich source of resentment and class conflict.  A thing to watch in considering how the future might unfold.

That the growth rate of the U.S. economy since the advent of Neoliberal policy making doesn't mean that the Keynesian system would still work like it did in the 50's and 60's.  All the chart on growth rates shows, and all that needs to be shown, is that the tenets of Neoliberalism don't hold water in the face of this decline.  Lowering the tax rate, and enabling businesses and owners to keep more of the pie, doesn't translate to higher growth rates.  That the belief lives on is only because it is an ideological first principle that is tenaciously believed in, but once first principles are proven unfounded in a big way, the belief in it tends to follow.  Whenever this eventuality emerges, the U.S. will be tempted to return to a Keynesian system.  Probably, it will be compelled to do it, and there likely will be a political battle over it.  However, it wouldn't look much be the Keynes of the 50's and 60's, but would look more like the Keynesian system of scarcity in operation during World War II. 

What Keynes and Neoliberalism share is one; they are both fundamentally capitalist systems, and, two; they both assume growth is natural and will continue forever.  And, to complicate things a little bit, these both share the last assumption with Karl Marx.  Note that I didn't say that they all share innovation but, even though I think that is true, it is a human characteristic to be innovative and not exclusive to these ways of thinking.  It is the character of innovation that I think needs to be examined.  It's useful to point out that some innovations, like the comb, don't advance once an optimal design has been discovered.  Markets haven't bet on new comb designs for thousands of years.  With that said, capitalism has worked through two systems in postwar 20th century America, and we are witnessing the failure of the second.  So why would I, as a blabospheric opinionator, insist that capitalism is at serious risk of ultimate failure?  Wasn't Marx wrong about that?

In a partial answer to this, I'll give a preview of what can be said about the Earth doll.  From a natural resource perspective, the Earth is poorer in resources than it was at any time before the present.  It is, in an absolute physical sense, a different world.  The American system of capitalism has proven very effective at exploiting resources at a faster and more effective clip than rival systems.  This is the very reason the U.S., with its huge endowment of natural resources available at the founding of the nation, was able to eventually attain the status of global superpower.  My old friend the Maximum Power Principle is a part of the Earth doll, and capitalism follows it's dictates better and more competitively than other systems.  The MPP is a part of the flow throughout the nesting doll analysis.  It is an energy flow, if I can be permitted to put it into Yoda-like language, that all Earth-dependent dolls must obey.  The energy flow is currently being reduced by the reduction of available energy in the form of fossil fuels.

I don't view capitalism as an ideology.  Some do.  Capitalism is best approached as a system that emerged from a set of particular historical and energetic conditions.  The historical element was the scientific/natural philosophical aspect of the Enlightenment that could be employed to build machines, as well as to comprehend the nature of the energy used by the machines.  The scientific/natural philosophical mind could also be used to inquire into something called the "market" and into the specialization of labor around the idea of a machine.  The machines could only work with enough concentrated energy that work overcome the inefficiency of the machine, to overcome the costs of building the machine, and generate a financial return great enough to reinvest into increasing the scale of the operation.  These are the necessary conditions for capitalism to function. 

Capitalism does not historically work in the absence of sufficient surplus.  It is why in times of total war, which was World War II for America, capitalism has been suspended.  The wartime economy in America was devised by John Maynard Keynes and it worked quite well compared to previous wartime economies, when belligerent governments would buy off the market and cause hyperinflation.  It was deemed at the time to only be possible with a near total governmental control over wartime output.  There is, after all, only one buyer on the market for a tank, or for a fighter plane.  Soldiers in the field also eat food and so rationing of food and all the basics other was in effect throughout the duration of the war which kept prices stable.  The wartime economy becomes an economy without surplus, as every bit of surplus that can be reasonably squeezed out goes to the war effort. 

The fate of capitalism is closely tied to the fate of Neoliberalism.  The reliance on cheap, easy credit needed to make Neoliberalism work is at the same time heavily reliant on cheap, easy fuel.  For now, the thing to watch is the credit, because it is, and has been, the main driver of the economy since at least 1980.  But credit, as well as energy, has been increasingly more available throughout the 20th century, and, if I were to look for another great money making scheme, it would be in the form of summary history bumper stickers.  The 20th century bumper sticker would read:  Credit got cheaper.  (I think it's best, for public safety reasons, to make bumper stickers succinct.)  Credit is a market measure of the future.  It is not a fail-safe measure, however.  A clear sign that the Neoliberal, and by extension the capitalist, experiment has reached a point of sweaty-palm desperation about the future is the amount of credit pushed into the system by traditionally non-market participants, or at least, participants outside the Neoliberal ideal.  And here I'm talking about Central Banks, and these institutions are the holdouts in the castle keep of Neoliberal capitalism.

And just to further that point a bit by way of quitting this blog post for now, just look at a simple chart and decide for yourself what it is telling us market participants.  It is a chart of the past several years of the S & P 500.

So, is it third time's a charm?  Or is it three strikes and you're out?  What would cause the line pointing upwards to heaven to maintain its assent?  Recall the graph on economic growth rates since the 70's I posted in the last blog.  Why would this continue to go up given that the underlying reason for its valuation keeps declining?  Neoliberals, and libertarian minded folks (more on them later), call for market discipline.  Constantly, and eternally, sounds the call for market discipline from these people.  It makes me think of the recent film release of "50 Shades of Grey".  Like the Earth doll, the capitalism doll is not the same as it was before.  The world is physically, politically, and, to invent a word form, expectationally a different place.  Will the rest of the world be patient with another market failure in the U.S., or in Europe, or Japan, or China?  The result of true market discipline that comports with the ideals of the true capitalist would, I suggest, likely spell the end of that system.   The system could very easily lose both its credit and its credibility all in one market disciplinary blowout.  Now, I haven't seen the movie "50 Shades of Grey", but from what I've heard about it, it sounds like some harsh discipline.  People who know me might be relieved to hear me say "that's not my thing", and I'm probably in line with most people that way.  The same probably holds true for market discipline.