[OPE] Jim Devine's model of the recent economic collapse.

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Sun Oct 18 2009 - 08:05:24 EDT

I don't see why an assessment of "approximately double the unemployment rate
of the labour force and half the real GDP growth rate in the foreseeable
future in the US" and the forecast of "a durably higher rate of
unemployment" is vague. It's a useful forecast. The foreseeable future is
maximally 7-10 years, as I've said before on OPE-L; useful forecasts
normally refer to maximally five years. I know this from experience, having
looked at a wide variety of predictions for economic growth, employment and
population. We'll see who is correct. What is really "vague" is people
rambling on about C, V and S for twenty years in a row.

As regards data, I've looked a lot at BLS data for the US workforce and at
German labour force data, also Eurostat data, Japanese data, ILO data etc.
some of which I reported on OPE-L. Marxists usually don't do this, they just
talk esoterically, vaguely and supremely abstractly about C, V and S, but I
find that boring and I would rather study the real world, which is what Marx
was concerned with. And I looked at national accounts data, and all sorts of
other indicators like capacity utilization, inflation rates, exchange rates
etc. Once you are freed from equilibrium fantasies the road is open to
studying the real world as it really is.

It is never possible to be completely exact to the decimal point about GDP
growth rates, since the GDP figure is itself only an estimate, revised
several times - for the last quarter estimate of US GDP for example there
have been no less than three revisions. And also, GDP measures for different
countries are not calculated in exactly the same way. Quarterly GDP data are
extrapolated from past data plus a few current indicators, but the models
are simply not equipped to deal with the novelty of sudden large
fluctuations. Increasingly also the economic data is tampered with, to make
the national situation look more favourable. Right now there's a stink about
this in Russia.

There is a strong statistical correlation between GDP (gross value added)
and unemployment - if unemployment rises, factor incomes will normally
decline, and vice versa, if unemployment decreases, factor incomes will
normally increase. You can calculate this very easily, simply by relating
BLS data to net output data. As Marx says, value creation requires the
employment of living labour, and if there's less living labour worked then
there will be less value creation. Arthur Okun empiricistically inferred
from this the so-called "Okun's Law" but this is not really a law but a
statistical generalization from the data. Nowadays, as a rule of thumb, you
could say that every 1% increase in unemployment leads to about a 2% drop in
net output, but it is just a rule of thumb, and not an absolute "law" since
it does not adequately factor in fluctuations in productivity, in the rate
of exploitation of labour, and the pattern of foreign trade.

>From a Marxian perspective, we have to look at what's behind the numbers,
the causal forces, we have to look at S/V, taxes and labour organization for
example. As regards Germany, it had persistently high unemployment for many
years, 5 million unemployed or so, and once they had it, it took many years
to whittle that down. Experience shows that once you have 10%+ unemployment
then it takes half a decade or more to whittle it down. How did the Germans
reduce unemployment? Well, a lot of the new jobs are "temping" jobs serviced
by hiring agencies, with shortterm contracts. This means that workers can be
much more quickly hired, but also be just as quickly laid off, and they
don't have many benefits or insurance. And thus, the labour market nowadays
responds very rapidly to fluctuations in output sales and enterprise
revenues. That is what employers want in Spain as well, because it is very
costly to lay off permanent employees there, and youth unemployment is
extremely high there.

On 30 January 2009, I discussed on OPE-L Steve Keen's prognoses for the
Australian economy and I said cautiously "We'll have to see who is right
about the unemployment figs"
http://ricardo.ecn.wfu.edu/~cottrell/OPE/archive/0901/0339.html The reason
for that is that I felt Steve was overestimating the escalation in
Australian unemployment, and I referred to "the possibility that Australia's
buoyant foreign trade with "emerging economies" like China sporting higher
growth rates, plus greater prudence in Aussie domestic financing, could
"cushion" the effects of the global credit crisis". And I think I am
basically correct about that, but I would agree with Steve that the
longer-term outlook is for a durably higher unemployment level in Australia
(and New Zealand) as well. What makes Australia significant for me, is that
it is, overall, the best-performing capitalist economy in the world in a
statistical sense ("the lucky country"). Maybe there are a few tax havens
that perform better, but then you're just talking about one island, not a
whole country with a large population.

If you follow Marx (not Marxist hysteria), you know that the property-owning
classes devolve the costs of their own system onto the ordinary working
people, and thus the effect of the financial crisis equals more
socio-economic inequality and more unemployment. If unemployment increases,
average real wages stagnate or fall, S/V increases. The system resolves its
problems not by collapsing (as in Marxist hysteria) or by Keynesianism but
by durably shifting the costs of the problems to a fraction of the
population which is thereby durably shut out from acquiring many of the
goodies of life - while in fact another fraction of the population might
actually improve its position. With more intense exploitation and better
technology the same output can be produced by fewer workers, and that's
exactly what happens. But simultaneously the system also tends to raise the
employment participation rate in the longer term - the necessity to work to
obtain income - albeit reducing the rewards of work to the workers doing it.
That is the long term process as Marx already noted in discussing the
general law of capitalist accumulation. The only exception to that is, if
markets expand so rapidly that unemployment becomes near-zero and workers
are able to lever up their wages, assuming they are organized.

I don't have the luxury at present to write a large tome explicating all the
why's and wherefores, but in any case I don't believe in trying to be
supremely exact about things that you cannot be so exact about. Economists
think, that because prices are numbers, that economics is an exact science.
But people like me who have studied the forms of prices, and the epistemic
basis for accounting estimates, realise that this is not true.

In contrast, Marxists natter about "levels of abstraction" but usually they
don't know what their abstractions mean, because they don't seriously
grapple with the experiential data, considering what those data mean,
properly. They don't study a "real object" but philosophize about "an object
in thought" and then they abstract one idea from another with esoteric
profundity, but what it has to do with the real world is anybody's guess.
The talk about "levels of abstraction" means, I think, mainly that they
don't know how to abstract or how to study something, it is just playing
with word meanings.


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Received on Sun Oct 18 08:15:06 2009

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