Monday, August 1, 2016

A transcript of Hillary Clinton's interview with the Washington Post on economic policy [feedly]

A transcript of Hillary Clinton's interview with the Washington Post on economic policy
https://www.washingtonpost.com/news/wonk/wp/2016/07/29/a-transcript-of-hillary-clintons-interview-with-the-washington-post-on-economic-policy/

The Washington Post's Jim Tankersley interviewed Hillary Clinton, the Democratic nominee for president, for 24 minutes on the phone on June 21. This is the full transcript of their interview, which Tankersley conducted from Washington and Clinton conducted from Columbus, Ohio.

[Hillary Clinton has a very detailed plan for the economy. That may be a problem.]

Tankersley: I wanted to start with a question from the last time that we talked when you were in Ohio, in 2006, when I was a reporter for the Toledo Blade and you were doing an event for Sherrod Brown. I asked you about the economy and what we needed to do even then. And you said, "We've got to get back to Clinton economic policies" – balanced budgets; spending cuts; sensible, affordable tax policies. I wanted to start by asking, what do Clinton economic policies mean today, and how have they changed in the last 10 or so years?

Clinton: Well Jim I think the first point to make is that we've got to look at how we create more good jobs and raise incomes for the future. And there are some lessons that can be learned from prior administrations, my husband's and others, and from this administration, that would give us some guideposts about what we have to do. We may have worked our way back from the Great Recession and created 14 million new private-sector jobs – I think that's an American success story we don't talk about enough – but we still face a lot of headwinds, a lot of historic challenges and global forces that we've got to come to grips with.

We're being buffeted by powerful forces that are different from, or more intense than they were in the 90s: advances in technology, the expansion of global trade, changes in how American families look, live and work. And I think it's fair to say these trends have powered progress in many ways, but too many of the benefits have gone to those at the top – corporate executives, shareholders, literally the top 1 percent of Americans – which has driven inequality to shocking levels. And a lot of the blue-collar and mid-level jobs that used to provide solid incomes for millions of Americans have disappeared.

The service jobs that are replacing them too often don't pay enough to raise a family, and I don't think it has to be this way. We have the power and the responsibility to try to figure out how to harness these big forces to strengthen the middle class instead of hollowing it out.

But instead, I think, too many leaders in government and business have made choices that widened the gap instead of narrowed it. We skewed the tax code toward the wealthy. We continued to undermine workers' rights. We have blocked investments in our shared future. And I don't think it's just greed, as serious as that is. It seems we've lost a sense of shared responsibility and forgotten we're all in this together.

So tomorrow in North Carolina I am laying out ambitious new goals to help us build a stronger, fairer economy that works for everyone, not just those at the top. I'm going to be borrowing from a lot of different strategies at work and coming up with some new ones, so that we can have a real debate in this election about the path forward.

Tankersley: When we talk about policies of the past 15 years, are there particular policies you would point to, to say, if we had done this differently, inequality would not have widened, the middle class would not have stagnated?

Clinton: Well let's look at what we've done in the past that has worked. I believe we are woefully ignoring one of the most important priorities we have to make us more competitive, and richer, and stronger, and put people to work, and that is infrastructure. I know it's kind of a tired and constant debate but it's true. We have built our country over the last 100 years and now we are really just resting on the sacrifice and investments that prior generations have made. And it's a shame because it does undermine our competitiveness and it does bar the way for jobs that could be keeping people or putting people in the middle class. So I'm going to be proposing the biggest infrastructure investment since Dwight Eisenhower's highway program, and it will be a combination of public and incentivized private investment. So there's one area where I really think we have missed the boat.

Another is, we have failed to invest in clean new renewable energy jobs to the extent I think they are possible for us, and if you look at states that are doing a better job of that, you can see what a difference it makes economically, compared to states that are ignoring the threat of climate change – and equally importantly, the potential for new jobs from clean renewable energy.

We also are poised to be able to make smart investments in advanced manufacturing, something that a lot of people think is lost and there's no point in trying to get back. But I've actually visited businesses, apprenticeship programs, community colleges, technical schools, that are preparing people for advanced manufacturing. And there are jobs out there. We are looking at a big gap between people with the skills that would prepare them for the jobs and the jobs that go unfilled.

So I am committed to looking at what are our gaps are in how we can produce more jobs with rising incomes, and growing the economy, and obviously I want to see it fairer, and that's not a question of minimum wage, equal pay and family balance policies, but also how we are going to go after the tax code so that they wealthiest among us make their contributions to our success. I saw an article you had written comparingKansas and California, and it's a pretty stark comparison. Obviously there are big differences between the two states, but I think the principle is one that is worth exploring.

If we make investments now – and obviously, investments come from both direct public dollars and indirect inducements for private investments – I think you would see the results.

It's also important to recognize that small business has stalled. There are a lot of explanations for this. I ask people all the time. Probably the most common explanation is that we haven't yet seen a return to credit being made available for start ups, for small businesses trying to grow, and it's a real barrier to job creation, because two-thirds of new jobs are started by small business.

So I think if you just look at the economy and you take apart the drivers for growth and rising incomes, and you ask yourself where is this being done, and where isn't it? How can we do more of it? What can we do at the federal level to try to incentivize state and local governments and private businesses to act?

I'll end with this one story. I think it was Politico had a long piece about the revitalization of a particularly dangerous part of a poor neighborhood inside of Cincinnati. They tried a lot of different things, none of which were working. Finally the business community came together with the elected officials who said we need to try some different things, and one of the tools that they used back in the early aughts was something started by my husband, the New Markets Tax Credit. They used it to try to incentivize private-sector, philanthropic investment into this neighborhood.

So we have a lot of evidence about what works. We need to be willing to examine that and then try to apply different approaches to the various challenges that we face.

Tankersley: I'd love to ask you about a few of the specific policies you've just mentioned. First, to talk about the tax rates the wealthiest Americans pay. You talk a lot about them paying their 'fair share'. Do you have in your mind a number, as a percent of their income, for what a 'fair share' would be for those wealthiest Americans?

Clinton: You know, I have embraced the Buffett Rule. That would be a minimum tax of 30 percent. I have embraced a Fair Share Surcharge on incomes above $5 million. I have looked at changes that Trump is proposing that are pretty much way out there in terms of the benefits that would accrue to the wealthiest and certainly am opposed to that. So my tax plan would provide breaks to those who need it the most. I would not increase taxes on anyone earning less than $250,000 and year.

Compare that to Trump's plan which would benefit the very rich to an unprecedented degree – you would actually give millionaires and corporations tax cuts in the trillions. More than 30 percent of his proposed tax cuts on personal income would go to the top 1 percent of income earners. Not only are these policies off-base, they would undermine our economic health and, according to experts, cause an unusually lengthy recession.

So it's not only what I am proposing, but I think it's important to look at the proposals coming from the other side and what their consequences would be.

Tankersley: But if Congress adopted your plan for the Buffett Rule, and your surcharge, then do you believe, if those both were enacted, the wealthy would be paying their fair share?

Clinton: Well, we'd have to get into the details, but we'd sure be on the right path.

Because right now – and I think this is one of the reasons Trump doesn't want to release his income taxes is, at least the years we have seen, there are several years he's paid nothing in federal income tax – there are still so many loopholes, so many gimmicks, that permit wealthy people with their legions of accountants and lawyers and lobbyists, to avoid paying even nominal tax rates, anything close to what a hard-working middle-class wage-earner would pay.

So we are going to go after the wealthy, because, as Warren Buffett has said, that's where the money is.

Tankersley: You said again today that you would renegotiate trade deals that aren't working for working Americans. So I would like to know, do you believe the economy would be better off today in the United States if we had not signed NAFTA, CAFTA and permanent normal trade relations with China?

Cinton: I think that's a hard question to answer, because we only did one-half of the equation in all three of those examples.

Part of the problem is that the trade agreements themselves have not been enforced. That is why I am advocating a trade prosecutor. I have set a very high bar for trade deals. I will only sign them if they meet that high bar of raising wages and creating good-paying jobs and enhancing our national security, and I know a little bit about how to go toe to toe with foreign companies on trade enforcement.

Again, you compare where Trump is on trade and I think it's pretty obvious that he would be someone who might recklessly start trade wars. He is advocating that. And as I said in my speech today, we went down that road in the 1930s and it made the Great Depression longer and more painful.

Now, when it comes to the trade agreements that we have, I have said I would renegotiate the agreements to try to make them more enforceable, make them more likely to require that other countries truly open their markets to us. Because in fact, that has not happened to the degree that we had hoped for, and I am very concerned that we are at a point now where we can no longer absorb as much of the manipulation of trade that we have in the past.

You know, I opposed the only multilateral trade deal that came up when I was in the Senate, CAFTA, because I thought it was bad for American jobs. I fought hard for American manufacturers against China's cheating as a senator from New York. So we've got to go after the problems with our trade agreements to make them work better, not displace jobs. And our biggest trade issues are with China, who we don't have a trade deal with, but they are the biggest rule-breaker out there.

So I recognize, we have to make some change in trade agreements, but I also believe we can't shut our borders to trade. We aren't even 5 percent of the world's population so we've got to figure out how to sell to the other 95 percent, and that means we have to know how to compete and win.

That brings me to the other side of the equation, because, despite a lot of efforts in the past to truly have a safety net, to truly have a lifelong learning system, to truly support employment – especially in industries that were under pressure from global competition – we just haven't stepped up and done what we needed to do.

So I look at this from both sides. We've got to make our trade agreements more enforceable and then enforce them. We've got to renegotiate them so that we are not taking advantage of. We have to make sure they've met the bar I've set. But at the same time we have to support people who are affected, dislocated by trade. And we just don't do a very good job of that.

Tankersley: I would be remiss if I didn't ask you about the anxiety we are seeing among white working class Americans, particularly men, in this campaign cycle. Where do you think that anxiety is coming from, and how would your policies help those anxious workers?

Clinton: Jim, I think it's real, and I respect the fear, the anxiety, even the anger that a lot of people are feeling, because the advance of globalization and technology has really replaced or undermined the future for many jobs. You don't have to go just to coal country to see that. You can go to a lot of parts of America, where people had good, decent jobs that provided a good middle class life for them and their kids. That was the American Dream. That's how we used to define it.

Now, we've seen so much downward pressure on wages. We've seen the disappearance of a lot of jobs that used to be available. And so I do think globalization and technology have played a role. But I also think decisions made by business leaders and government leaders have also played a role. I just don't think we are as focused as we need to be in trying to rebuild economic opportunity in places that have been hollowed out.

And we know some things about how to do that. We cut back on our research budget in the last several years – it was the worst time to do that, under sequestration. We could be reaping benefits from all kinds of research into jobs sectors of the future. You know, during the primary campaign my husband visitedMorehead State in Eastern Kentucky, which had a contract from I think NASA, or maybe DOD, and you had kids in this university working on miniaturizing satellites. It showed that if you have higher education linked up to job creation, we can actually not only invent things, we can maybe make the transition to manufacturing them, with the right kind of incentives.

So I really believe that it doesn't have to be this way. What people are feeling is that the economy failed them, their government failed them. They just are looking for somebody who will explain, in a way they will accept, what's happened. So Trump comes along and he blames immigrants and he blames minorities and he blames women, and people are responsive to that because these are hard times that folks are going through.

I think my economic message is resonating with people – through all our campaign we've received more votes than anyone in this primary season, including Donald Trump. And it's fair to say that my economic plans are detailed and varied because I think we are facing complex problems that require serious solutions. But they're all focused on a single, over-arching goal, and that is to create good-paying jobs with rising incomes. That is the defining economic challenge of our time.

So that's why I'm coming forth with the biggest, boldest infrastructure investment since Eisenhower. It's why I believe that we can boost productivity in the economy by better linking education and skills. Like I said, the number of people who could get jobs if they had the skills, as machinists or tool and die makers, or computer coders or whatever it may be. So I'm excited about what we can do.

I respect the legitimate concerns that so many Americans have, because of what has happened to them. But I am offering a path forward that I think can actually produce results for them.

-- via my feedly newsfeed

The Economist: Minsky's moment

Financial stability

Minsky's moment

The second article in our series on seminal economic ideas looks at Hyman Minsky's hypothesis that booms sow the seeds of busts

FROM the start of his academic career in the 1950s until 1996, when he died, Hyman Minsky laboured in relative obscurity. His research about financial crises and their causes attracted a few devoted admirers but little mainstream attention: this newspaper cited him only once while he was alive, and it was but a brief mention. So it remained until 2007, when the subprime-mortgage crisis erupted in America. Suddenly, it seemed that everyone was turning to his writings as they tried to make sense of the mayhem. Brokers wrote notes to clients about the "Minsky moment" engulfing financial markets. Central bankers referred to his theories in their speeches. And he became a posthumous media star, with just about every major outlet giving column space and airtime to his ideas. The Economist has mentioned him in at least 30 articles since 2007.

If Minsky remained far from the limelight throughout his life, it is at least in part because his approach shunned academic conventions. He started his university education in mathematics but made little use of calculations when he shifted to economics, despite the discipline's growing emphasis on quantitative methods. Instead, he pieced his views together in his essays, lectures and books, including one about John Maynard Keynes, the economist who most influenced his thinking. He also gained hands-on experience, serving on the board of Mark Twain Bank in St Louis, Missouri, where he taught.

Bernanke: How do people really feel about the economy? [feedly]

How do people really feel about the economy?

Ben Bernanke

https://www.brookings.edu/2016/06/30/how-do-people-really-feel-about-the-economy/

Political outsiders have had quite a good year in the United States (and elsewhere), and many pundits have attributed their success to voters' profound dissatisfaction with the economy. Certainly there is plenty to be dissatisfied about, including growing inequality of income and wealth and stagnation in real wages. But there are positives as well, including an improving labor market, low inflation, and low gasoline prices. How do people really feel about the U.S. economy?

This post will
not
tackle the substance of Americans' worries about the economy but instead highlights a puzzle arising from pollsters' efforts to quantify those worries. I'll show that, when Americans are asked specifically about the economy, in an apolitical context, they are for the most part not nearly as pessimistic as the conventional wisdom would have it. Instead, they answer more or less as they have done in the past at a similar stage of the business cycle. But, at the same time, when asked more generally about the way things are going in the United States, or about whether the country is going in the right direction, a strong majority gives downbeat answers, to an extent that is quite different from how they have responded in the past. Understanding the divergence between the replies to these two types of surveys is important, and I end the post with a few thoughts on possible reasons.

Surveys of consumer "sentiment" or "confidence," such as those that have been conducted for many years by
the University of Michigan
and
the Conference Board
, aim to measure how people feel about their own finances and the state of the economy in general, without trying to elicit households' political leanings or voting intentions. These surveys have proved useful in forecasting consumer spending and other aspects of household economic behavior, and they are accordingly closely followed by economists. Interestingly, in recent years, surveys of household sentiment have generally been more positive than one might anticipate, based on the gloomy prevailing narrative.

To illustrate, Figure 1 presents data from 1979 to the present, taken from the University of Michigan's consumer sentiment survey, on how households view their current and expected (over the next year) personal finances. Shown for comparison is the response to a more general, open-ended question (asked by
Gallup
) about whether people are satisfied (or not) with "the way things are going" in the United States. The three sets of responses, and all other data series mentioned in this post, are measured on comparable scales: Percent positive ("better" or "satisfied") minus percent negative ("worse" or "unsatisfied") + 100. [1] A score of 100 is thus the dividing line; values above 100 imply that a plurality (ignoring the undecided) are "satisfied" or see things as getting better.

fig1

The three series do tend to move together. Not surprisingly, for example, all decline around recessions (shown as shaded bars in the figure). However, the recent divergence between people's views of their own finances and their assessments of "the way things are going" more generally is striking. The reading on the "better off than last year" gauge plunged during the recent recession but has risen steadily and, excepting a late 1990s surge, is now as high as in any period since 1979. Respondents' expectations for changes in their personal finances vary less but are also now relatively high—close to where they were during the economic recovery of the 1980s. In contrast, people have continued to tell Gallup that they are very unsatisfied with the way things are going. That index began to fall at the beginning of the last decade and was already very low when the recent recession hit. Rather than recovering with the economy and with sentiment indexes, however, this measure of national mood has remained at historically low levels.

The recent contrast between the behaviors of consumer sentiment and broader indicators of public satisfaction is robust to alternative ways of framing the question. For example, a possible explanation of the divergence seen in Figure 1 is that people feel reasonably good about their own situations but are worried about the economy as a whole. Another possible resolution follows from the observation that Figure 1 compares actual and expected
changes
in personal finances with the
level
of satisfaction or dissatisfaction with the state of the country: It's logically possible that people simultaneously see near-term improvements while remaining pessimistic about the longer-run prospects for the economy. To try to address both possibilities, Figure 2 below compares responses about "the way things are going" with the responses to a question from the Michigan survey about expected business conditions over the next five years. [2]Responses to the latter question should elicit how people feel about the economy as a whole, as opposed to their personal situations, and a five-year window should capture more long-term views of the economy.

fig2

Figure 2 shows that consumers' expectations about business conditions over the next five years are indeed correlated with their assessments of the way things are going in the country. In particular, the decline in expected business conditions that began around 2000 might help explain the fall, beginning at about the same time, in the broader measure of satisfaction. [3] However, Figure 2 also shows the same puzzling divergence of the past few years seen in Figure 1: Expected business conditions (University of Michigan) have recovered to more or less normal levels, while satisfaction with the way things are going (Gallup) has remained historically low.

Demographic breakdowns of sentiment indicators also present puzzles for the prevailing narrative of widespread economic dissatisfaction. Figure 3 shows people's expectations of business conditions in five years (the same variable shown in Figure 2) broken down by age group. Despite the well-publicized problems of young adults (student debt, inability to escape their parents' basements, etc.), young people are the most optimistic about the longer-term condition of the economy, with net positive ratings close to all-time highs. Young people are also strongly positive, both absolutely and relative to other age groups, about their personal financial outlooks (data not shown). Figure 3 shows that older people are the most pessimistic about business conditions, but not notably more pessimistic than the average of the post-1979 sample. [4]

fig3

Increasing income inequality is often cited by political observers as a reason for economic dissatisfaction. Inequality is indeed a serious concern. A large share of the income gains from the ongoing economic recovery have accrued to the better off, which would lead us to expect those at lower incomes to be the most pessimistic. Figure 4 breaks down households' responses to the question about expected business conditions into thirds, based on reported income. Not surprisingly, those with highest incomes are most optimistic about the economy. But all three groups have become more optimistic since the recession, and the spread among the income terciles is only marginally greater than in the past. Similar patterns emerge when people at different income levels are asked about their personal financial situations (data not shown).

fig4

In summary, the University of Michigan's survey of consumer attitudes has shown a normal cyclical pattern of improvement in recent years, both in how people feel about their own economic prospects and in their expectations for the economy as a whole.

[5]

In contrast, measures of the national "mood," like Gallup's "way things are going" question or questions about the "direction of the country,"
show a high level of dissatisfaction
. What accounts for the discrepancy?

There are of course multiple possibilities, not mutually exclusive. For example, traumatic national events, including the 9/11 attacks and the 2007-2009 financial crisis, may have had lasting effects on public confidence that are not captured in their near-term assessments of economic performance. (Satisfaction with the way things are going did begin a sustained decline around 2001, at about the time of 9/11, the end of the tech bubble, and the 2001 recession.) It may also be that, in responding to broad questions about the direction of the country, people are taking into account non-economic concerns, such as
social problems and cultural fears
. Such factors must certainly be part of the story, but it should be noted that many social indicators (such as
teenage births
and
crime rates
) have been moving in generally favorable directions.

I suspect that greater social and political polarization itself has a role to play in explaining reported levels of dissatisfaction. To an increasing extent,
Americans are self-selecting into non-overlapping communities
(real and virtual) of differing demographics and ideologies, served by a fragmented and partisan media. We see, for example, a sharply widening partisan gap in presidential approval ratings (Figure 5). As the figure shows, to a greater extent than in the past, people tend to have strongly positive views of a president of their own party and strongly negative views of a president of the opposite party. [6]

fig5

In a highly polarized environment, with echo-chamber media, political debates often become shrill, and commentators and advocates have strong incentives to argue that the country's future is bleak unless their party gains control. In this environment, it seems plausible that people will respond more intensely and negatively to open-ended questions about the general state of the country, while questions in a survey focused narrowly on economic conditions elicit more moderate responses. Without doubt, the economic problems facing the country are real, and require serious and sustained responses. But while perceptions of economic stress are certainly roiling our national politics, it may also be that our roiled politics are worsening how we collectively perceive the economy.

[1] The exact wording of the questions is as follows: (1) "We are interested in how people are getting along financially these days. Would you say that you (and your family living there) are better off or worse off financially than you were a year ago?" (2) "Now looking ahead–do you think that a year from now you (and your family living there) will be better off financially, or worse off, or just about the same as now?" (3) "In general, are you satisfied or dissatisfied with the way things are going in the United States at this time?"

[2] The full question is: "Looking ahead, which would you say is more likely–that in the country as a whole we'll have continuous good times during the next 5 years or so, or that we will have periods of widespread unemployment or depression, or what?"

[3] It's interesting that expected business conditions were highly favorable during the stock market boom of the late 1990s but less so during the housing boom of the early 2000s.

[4] The responses of those 55+ have averaged 89.8 over the past 12 months (94 in May), while the average of the full sample is 90.4.

[5] Qualitatively similar findings can be seen in the Conference Board's index of consumer confidence.

[6] http://www.pewresearch.org/fact-tank/2016/01/27/the-demographic-trends-shaping-american-politics-in-2016-and-beyond/

-- via my feedly newsfeed

Sunday, July 31, 2016

The federal minimum wage has been eroded by decades of inaction

http://epi.org/111134

The federal minimum wage has been eroded by decades of inaction

Economic Snapshot • By David Cooper • July 25, 2016

This week marks the seven-year anniversary of the last time the federal minimum wage was raised, from $6.55 to $7.25 on July 24, 2009. Since then, the purchasing power of the federal minimum wage has fallen by 10 percent as inflation has slowly eroded its value. However, this decline in the buying power of the minimum wage over the past seven years is not even half the overall decline in the minimum wage's value since the late 1960s. As the figure below shows, at its high point in 1968, the federal minimum wage was equal to $9.63 in today's dollars1. That means that workers at the minimum wage today are paid roughly 25 percent less than their counterparts 48 years ago.

Saturday, July 30, 2016

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Reflections on Joseph Schumpeter, Creative Destruction and Innovation

Reflections on Joseph Schumpeter and Creative Destruction

Part I: Introduction

In Capitalism, Socialism, and Democracy (1942), the Austrian economist Joseph Schumpeter (1883–1950) wrote:

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. (p. 83)

Schumpeter devoted a mere six-page chapter to "The Process of Creative Destruction," in which he described capitalism as "the perennial gale of creative destruction." Despite some ups and downs in reputation over the decades, it has become a centerpiece for modern thinking on how economies evolve. One of the most paradoxical economic theoreticians in history, Schumpeter is an intellectual child of Karl Marx and Frederick Engels. Yet he is father of the lions share of Free Market economic development theory on the "libertarian" right wing of the economics profession, and evolutionary economics on the left.

Schumpeter's paradox of progress, takes this expression, according to a modern "free market" - Schumpeterian:

"A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. Schumpeter's enduring term reminds us that capitalism's pain and gain are inextricably linked. The process of creating new industries does not go forward without sweeping away the preexisting order."

This is clearly where the right wing does a Thelma and Louise with "creative destruction" and drives into a Grand Canyon with their obsession. Note the acceptability of individuals losing out "forever" combined with "inevitable pain"!! For Schumpeter the chaos would always lead naturally to efforts to moderate, to pay the losers. Those efforts and reforms would lead to institutions and laws, as well, but would themselves in the end be undermined by the permanence of change.

This series discussion on Schumpeter and his legacy focuses on the implications for socialism and social democracy in the serious, and difficult-to-deny truths contained in his essential insight -- relating "creative destruction" to innovation. For this purpose, I will use the following, simplified, essentially Marxist (but also Schumperterian), definition of "capitalism":

"a system of economic relations and development arising from the circulation (motion) of commodities. Commodities are defined as products or services produced primarily or solely for exchange."

Notice that with the motion and circulation absent, there is no capitalism, and indeed, no commodities. It is the motion and the inherent contradictions and variation that flows from real motion, and real development, that give Marx's, and Schumpeter's, dialectical theory their special power and appeal.

Schumpeter borrowed some dialectics as it would apply to economics from Marx and Engels. Dialectics is a non-metaphysical logic of motion in which Negation (differentiation, variation, conflict, competition, contradiction, the new replacing the old, etc) plays a central role in propelling evolution in physical, biological and economic systems. Schumpeter also embraced philosophically Marx's and the classical economists' labor theory of economic value. However he agreed with his famous student, Paul Samuelson, that, price theory would have to be the data foundation of any practical value theory, since it is not easy, indeed likely not possible, to calculate the "mean socially necessary labor" required to comply with Marx's (or Adam Smith's, for that matter) value definition -- a definition that in Classical economics was derived more deductively than via data. It's worth noting that the primary objection here is not statistical. Most statisticians will agree you can plot a regression line through most any data set depending on what level of confidence you require in the result! The problem is different: there are many qualitative, in addition to quantifiable, inputs into the expression: "socially necessary labor". There are elementary ones, like skill differentials involving human capital investments (e.g. education). The division of labor in modern economies has become vastly more complex than in the times of classical economics. Then there is the thorny question of valuing public good and infrastructure inputs into the quality of "an hour of labor", and the even more thorny question of valuation of intangible products (ideas, many services, software, etc). The sum of the thorny questions equals a value that cannot be computed presently. So, studying the behavior of prices, supply and demand has been a modern, data-driven approximation of "value" theory.

While Schumpeter agreed that the instability of capitalism would ultimately lead to a scantly defined "socialism", he chiefly employed Marx's ideas to promote rather than deride capitalism's ceaseless revolutionizing of all previous modes of production and their associated social and economic relations. He was blunt in championing an echo of capitalism's critics in acknowledging that lost jobs, ruined companies, and vanishing industries are inherent parts of the growth system. The saving grace, he argued, comes from recognizing the good that comes from the turmoil. Over time, societies that allow creative destruction to operate grow more productive and richer; their citizens see the benefits of new and better products, shorter work weeks, better jobs, and higher living standards. Yes, following 1910, for example, 109,000 carriage and harness makers and 238,000 blacksmiths became obsolete and had to find other occupations. But, in a world increasingly dominated by what you could buy with the universal commodity, money, and with millions in subsistence or under-subsistence agriculture "tractor-ed out by the cat's" --- the higher productivity, and wages, in the emerging commercial and mass industrial sectors were a force too compelling to deny. Further, one might say inevitably, a sharp class struggle arose alongside these structural changes in labor markets as workers demanded a bigger share of the vastly increased value(s) their labor created. This cumulative result impressed Schumpeter with its possible antidote, or at least counter-pressure, to Marx's description of a much stronger tendency toward working class immiseration as the primary outcome of capitalist class relations.

Schumpeter's dialectics of creation and destruction as brides of development and innovation have been sustained by the 20th and 21st century capitalist history. He felt strongly that capitalism could only be understood as a historical, and evolutionary, phenomenon. He also was, like Marx, a "long waver" -- an adherent of the theory that roughly 50-75 year -- perhaps generational -- cycles of technology and innovation (not the supply and demand business cycle) were the source of both instability and growth in capitalism. Further "growth" had a fundamental definition as a kind of reproduction, as in organic birth, as the system reproduced itself. Each generation (projecting reproduction in a mass context) -- a third of the entire division of labor must be replaced -- but replaced in ever more evolved forms since the "system" is not, and cannot be, the same as it was when the retiring generation entered, before the human labors of two generations had made their mark, and changed the "real world".

Lets take a walk through some recent economic history from a socialist Schumpeterian viewpoint. After 1991 the USSR model of socialism was judged a failure. The Maoist one had already been judged that after the catastrophe of the Cultural Revolution. Though different in various ways, both shared a common, and conscious, adherence to a "command", or "planned" economic model that has proved unworkable, or at least unsustainable, in the era of commodities. The planned model cannot escape scarcity in this era. Historically that leads to strong corruption pressures, weak innovation, or, a return to markets. Scarcity is the prime condition for human wants being satisfied by exchange -- or by commodities -- assuming labor and wealth has advanced to enable a non-primitive division of labor. For a Schumpeterian neither turn of events (the USSR, or the Mao regime) would be surprising. He might even quote Marx on the conditions for communism: the technological ability to provide material human wants and needs abundantly and cheaply (if not freely). Although, to be fair to Marx, he wrote very little elaborating his views of post capitalist society. Plus, he clearly changed his mind over time. In any event, its clear now that Chinese, Vietnamese, many Latin American and indeed most socialist trends have accepted a dose of Schumpeter and committed themselves to mixed (part capitalist, part socialist) socialist economic models. Of these, it must be said that those with more -- but not too much -- planning, are growing faster. At the same time, those who, economically, retreated from the "command" policy least, or slowest, are growing least. Those where socialism held insufficient power, or was excessively reliant on natural resource commodities (oil, etc), have the most political instability. Countries with historically strong social democracies have fared best, at least from a working class point of view. However they too are struggling to accommodate and restructure in response to the many dimensions of globalization and the "creative destruction" forces it unleashes.

On the "capitalist" side of the "creative destruction" walk, after 2007 there are few economists left who still believe that some deft combination of Keynes and/or Friedman regulatory regimes have solved the "depression problem". But for 40 years the corporate led unraveling and gutting of the New Deal social contract with American working families -- itself the cap of a Schumpeterian cycle of growth and restructuring -- was frequently covered up in economic debate in large measure by a consensus that said decades of "no raises for workers" won't seriously threaten the economy, never mind the entire society. A lot of malarkey one might say, while technology and globalization have turned every US and global labor and capital market -- even fast food -- upside down; while incomes in "advanced economies" are going down, or are flat; while the 1% is grabbing all it can consume and parking it anywhere in the world where cops and taxation cannot find it. The turmoil is generating global dysfunction in government at every level, and extremes in politics, including violence, and, if not contained and constrained, will lead irreversibly to war.

Can creative destruction be contained and managed for at least the duration of time in which we depend upon commodities? That is a key question and challenge for both socialists and all working class democratic forces. In Part II of this series I will survey possible Schumpetarian solutions to this challenge from heterodox economics, innovation studies, game theory, and some alternate economic models in practice around the world. Part III will survey a different question:Does creative destruction apply in economies, or communities, freed from commodities?

John Case
Harpers Ferry, WV

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Friday, July 29, 2016

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Imagining President Trump
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