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The Consequences of Moving from Industrial to Financial Capitalism

20 points by jeffreyrogers 6y ago

missedthecue 6y ago
This is an eleven thousand word interview with a Marxist.
- sheeeep86 6y ago
  This is the best summary of the article. There are very few actual numbers in this, just a lot of generalizations about what happens in the US based on reading the news from afar.
  - sudosysgen 6y ago
    Michael Hudson is PhD in Economics and a professor of economics that worked at Chase as a research economist. His conclusions aren't based on "reading the news from afar".
    - missedthecue 6y ago
      Kurt Wise is a PhD in paleontology from Harvard and is a young earth creationist. Having a PhD does not make you correct. And the guy above is right that there's very little data in the article. A lot of musings and general observations.
      - sudosysgen 6y ago
        That's why I didn't just mention his degree, I mentioned that he's currently employed as a professor and that he worked at high level in the private sector in this field. There's not really much more you could ask for. I'm not sure Kurt Wise could find a job as a paleontology professor and as a forensic paleontologist in a very impactful position. There is not that much data, of course. This is an article meant for laymen in economics, and is mostly focused on explaining the reasons why things are as they are. If you want quantitative analysis you can certainly find quite a bit that agrees with him.
- Tarsul 6y ago
  Doesn't mean it's wrong, though. I found the part enlightening about America not being able to compete with China in manufacturing (if they wanted to) because health care, housing, education is so expensive in the US. Of course everything is more expensive in America than in China, that's crystal clear. However and nonetheless there's a reason why Germany still has a lot of industry and the US has not and the point that the US just puts its money where it generates the most money (not where it necessarily strenghens the local economy) resonates. It's really a shame how little the US politics influenced the economy in the right ways in the last 20-30 years. I'm talking infrastructure, affordable health care, minimum wages, TAXES etc.
- sudosysgen 6y ago
  Yes, and it's not wrong. In the US, 21% of GDP is from finance, which is materially non-productive, and this sector was growing at 6% pre-pandemic. The use of finance is, at least in theory, it's ability to provide growth to productive sectors. When you're seeing finance being one of the primary drivers of growth by itself, whereas productive sectors don't grow, this indicates that you're lagging behind in your capacity to actually produce value. To note, this isn't just an "interview with a Marxist". Michael Hudson has a PhD in economics and is a professor of economics at the Univeristy of Missouri. He's a classical economist, that happens to use some elements of Marxian economics too.
  - DebtDeflation 6y ago
    >The use of finance is, at least in theory, it's ability to provide growth to productive sectors. The main distinction is between the primary market (which provides new funding to companies) and the secondary market (which trades existing securities). You need a certain amount of the latter to support the former by providing liquidity. But anything beyond the required amount starts creating what's known as deadweight losses in economics. Unfortunately, an increasing share of the overall financial sector is the secondary market (mainly proprietary trading operations).
    - sudosysgen 6y ago
      Unless I'm misremenbering, in theory the effects of the primary market should correlate with growth in production, right? I'm dusty so I might misremember.
  - dragonwriter 6y ago
    > The use of finance is, at least in theory, it's ability to provide growth to productive sectors. No, like all other capitalist industries, the use of finance is increase the wealth of capital owners. > When you're seeing finance being one of the primary drivers of growth by itself, whereas productive sectors don't grow, this indicates that you're lagging behind in your capacity to actually produce value. No, because of its driving growth, it is producing value (not just for it's owners, which is it's narrow purpose, but for whoever is purchasing the service.) If a nation is seeing finance-driven growth, it's just a sign that that is where it's Ricardian comparative advantage lies in the system of trade. And if you look at international trade regimes, there's a pretty clear finance (and information/knowledge work more generally) - manufacturing - extractive heirarchy ranging from the core to the peripheries. Positive changes in relative position in the world economic order are associated very much with moving to the earlier part of that list.
- jeffreyrogers 6y ago
  I'm about as far as you can get from a Marxist (I posted the article) and I found it interesting.
ldbooth 6y ago
This excerpt tied the article to the present SNAFU well "Wall Street groups buy the infrastructure. They’ll do what happened to Chicago when it sold all the parking meters, they’ll say, OK, instead of 25 cents an hour, it’s now charged $3 an hour. Instead of a $2 for the subway, let’s make it $8. You’re going to price the American economy even further out of business because they say that public investment is socialism. Well, it’s not socialism. It’s industrial capitalism. It’s industrialization, that’s basic economics. The idea of what, and how an economy works is so twisted academically that it’s the antithesis of what Adam Smith, John Stewart Mill and Marx all talked about. For them a free- market economy was an economy free of rentiers. Free of rent, it didn’t have any rent seeking. But now for the Americans, a free-market economy is free for the rentiers, free for the landlord, free for the banks to make a killing. And that is basically the class war back in business with a vengeance."
gumby 6y ago
The US has some terrible problems but this article doesn't discuss them, preferring a convenient and lazy argument based on nonsense: > America doesn’t make its own shoes. It doesn’t make some nuts and bolts or fasteners, it doesn’t make industrial things anymore because if money is to be made off an industrial company it’s to buy and sell the company, not to make loans to increase the company’s production. This is of course utter bullshit. The US manufacturing output is more than 1/2 china's (about 16% of world production vs 28% for china) despite having less than a quarter the population. Sure, on a per capita basis Germany produces more than the US but back of the envelope the US is #2 or #3. And that doesn't include agriculture which in the US (and other OECD countries but not China) is highly industrialized, or housing or other such: just factories making physical goods. What has happened is that the US manufacturing has moved into a saddle curve: either products that are too low in value compared to their transport costs (e.g. paper) or of such high added value that the other costs mentioned in the article are not relevant (high precision bearings, some kinds of software, chip fab equipment...and yes some fasteners). Unfortunately some of this consists of arms (e.g. F-35) which are sort of the ultimate in Bastiat-style "broken windows" and end up reflecting very little in actual economic development and fundamental growth). But still, a huge amount of manufacturing. Of course by the nature of this, the US ends up exporting less of its manufacturing output than a country like China would, as its goods are either non-exportable or of more limited utility.
- sudosysgen 6y ago
  I don't see how your facts disagree with the assertion. The US manufactures more in terms of dollars, but in terms of volume of goods the US falls behind significantly. These goods require efficient labour - that is, labour that is efficiently reproduced, and therefore cost-effective housing, healthcare, and so on, to be made effectively, as well as high-volume, low cost, logistics. Because of this, the US cannot do the kind of manufacturing China can do systematically, whereas China simply needs better technology to be able to manufacture the very high value goods that are dominant in the US This inevitably leads to a weakening of the US manufacturing sector assuming competitive markets. Also, if you're taking into account goods that cannot be imported or exported for structural reasons and whose components are of negligible price, you should do some adjustment for purchasing power parity, as the exact same goods in another economy would be sold at a much lower price

20 points by jeffreyrogers 6y ago

missedthecue 6y ago

This is an eleven thousand word interview with a Marxist.

sheeeep86 6y ago
This is the best summary of the article. There are very few actual numbers in this, just a lot of generalizations about what happens in the US based on reading the news from afar.
- sudosysgen 6y ago
  Michael Hudson is PhD in Economics and a professor of economics that worked at Chase as a research economist. His conclusions aren't based on "reading the news from afar".
  - missedthecue 6y ago
    Kurt Wise is a PhD in paleontology from Harvard and is a young earth creationist. Having a PhD does not make you correct. And the guy above is right that there's very little data in the article. A lot of musings and general observations.
    - sudosysgen 6y ago
      That's why I didn't just mention his degree, I mentioned that he's currently employed as a professor and that he worked at high level in the private sector in this field. There's not really much more you could ask for. I'm not sure Kurt Wise could find a job as a paleontology professor and as a forensic paleontologist in a very impactful position. There is not that much data, of course. This is an article meant for laymen in economics, and is mostly focused on explaining the reasons why things are as they are. If you want quantitative analysis you can certainly find quite a bit that agrees with him.
Tarsul 6y ago
Doesn't mean it's wrong, though. I found the part enlightening about America not being able to compete with China in manufacturing (if they wanted to) because health care, housing, education is so expensive in the US. Of course everything is more expensive in America than in China, that's crystal clear. However and nonetheless there's a reason why Germany still has a lot of industry and the US has not and the point that the US just puts its money where it generates the most money (not where it necessarily strenghens the local economy) resonates. It's really a shame how little the US politics influenced the economy in the right ways in the last 20-30 years. I'm talking infrastructure, affordable health care, minimum wages, TAXES etc.
sudosysgen 6y ago
Yes, and it's not wrong. In the US, 21% of GDP is from finance, which is materially non-productive, and this sector was growing at 6% pre-pandemic. The use of finance is, at least in theory, it's ability to provide growth to productive sectors. When you're seeing finance being one of the primary drivers of growth by itself, whereas productive sectors don't grow, this indicates that you're lagging behind in your capacity to actually produce value. To note, this isn't just an "interview with a Marxist". Michael Hudson has a PhD in economics and is a professor of economics at the Univeristy of Missouri. He's a classical economist, that happens to use some elements of Marxian economics too.
- DebtDeflation 6y ago
  >The use of finance is, at least in theory, it's ability to provide growth to productive sectors. The main distinction is between the primary market (which provides new funding to companies) and the secondary market (which trades existing securities). You need a certain amount of the latter to support the former by providing liquidity. But anything beyond the required amount starts creating what's known as deadweight losses in economics. Unfortunately, an increasing share of the overall financial sector is the secondary market (mainly proprietary trading operations).
  - sudosysgen 6y ago
    Unless I'm misremenbering, in theory the effects of the primary market should correlate with growth in production, right? I'm dusty so I might misremember.
- dragonwriter 6y ago
  > The use of finance is, at least in theory, it's ability to provide growth to productive sectors. No, like all other capitalist industries, the use of finance is increase the wealth of capital owners. > When you're seeing finance being one of the primary drivers of growth by itself, whereas productive sectors don't grow, this indicates that you're lagging behind in your capacity to actually produce value. No, because of its driving growth, it is producing value (not just for it's owners, which is it's narrow purpose, but for whoever is purchasing the service.) If a nation is seeing finance-driven growth, it's just a sign that that is where it's Ricardian comparative advantage lies in the system of trade. And if you look at international trade regimes, there's a pretty clear finance (and information/knowledge work more generally) - manufacturing - extractive heirarchy ranging from the core to the peripheries. Positive changes in relative position in the world economic order are associated very much with moving to the earlier part of that list.
jeffreyrogers 6y ago
I'm about as far as you can get from a Marxist (I posted the article) and I found it interesting.

ldbooth 6y ago

This excerpt tied the article to the present SNAFU well "Wall Street groups buy the infrastructure. They’ll do what happened to Chicago when it sold all the parking meters, they’ll say, OK, instead of 25 cents an hour, it’s now charged $3 an hour. Instead of a $2 for the subway, let’s make it $8. You’re going to price the American economy even further out of business because they say that public investment is socialism. Well, it’s not socialism. It’s industrial capitalism. It’s industrialization, that’s basic economics. The idea of what, and how an economy works is so twisted academically that it’s the antithesis of what Adam Smith, John Stewart Mill and Marx all talked about. For them a free- market economy was an economy free of rentiers. Free of rent, it didn’t have any rent seeking. But now for the Americans, a free-market economy is free for the rentiers, free for the landlord, free for the banks to make a killing. And that is basically the class war back in business with a vengeance."

gumby 6y ago

The US has some terrible problems but this article doesn't discuss them, preferring a convenient and lazy argument based on nonsense: > America doesn’t make its own shoes. It doesn’t make some nuts and bolts or fasteners, it doesn’t make industrial things anymore because if money is to be made off an industrial company it’s to buy and sell the company, not to make loans to increase the company’s production. This is of course utter bullshit. The US manufacturing output is more than 1/2 china's (about 16% of world production vs 28% for china) despite having less than a quarter the population. Sure, on a per capita basis Germany produces more than the US but back of the envelope the US is #2 or #3. And that doesn't include agriculture which in the US (and other OECD countries but not China) is highly industrialized, or housing or other such: just factories making physical goods. What has happened is that the US manufacturing has moved into a saddle curve: either products that are too low in value compared to their transport costs (e.g. paper) or of such high added value that the other costs mentioned in the article are not relevant (high precision bearings, some kinds of software, chip fab equipment...and yes some fasteners). Unfortunately some of this consists of arms (e.g. F-35) which are sort of the ultimate in Bastiat-style "broken windows" and end up reflecting very little in actual economic development and fundamental growth). But still, a huge amount of manufacturing. Of course by the nature of this, the US ends up exporting less of its manufacturing output than a country like China would, as its goods are either non-exportable or of more limited utility.

sudosysgen 6y ago
I don't see how your facts disagree with the assertion. The US manufactures more in terms of dollars, but in terms of volume of goods the US falls behind significantly. These goods require efficient labour - that is, labour that is efficiently reproduced, and therefore cost-effective housing, healthcare, and so on, to be made effectively, as well as high-volume, low cost, logistics. Because of this, the US cannot do the kind of manufacturing China can do systematically, whereas China simply needs better technology to be able to manufacture the very high value goods that are dominant in the US This inevitably leads to a weakening of the US manufacturing sector assuming competitive markets. Also, if you're taking into account goods that cannot be imported or exported for structural reasons and whose components are of negligible price, you should do some adjustment for purchasing power parity, as the exact same goods in another economy would be sold at a much lower price