Tuesday, March 06, 2012

Hedge fund Marxism?

Roben Farzad in Shortcomings of Capitalism: 'Our Grandchildren Have No Value' Bloomberg Businessweek 03/01/2012 references this article, which has a somewhat different title than the Businessweek headline indicates: Jeremy Grantham, Your Grandchildren Have No Value (And Other Deficiencies of Capitalism) GMO Quarterly Letter Feb 2012. GMO is an asset-management firm.

Karl Marx is the classical critic of capitalism, just as Adam Smith is understood to be its classic advocate. Today's worshipers of the Great God Free Market would be appalled at what Smith had to say about some things, like the detrimental effects of corporations. But the symbols are well established.

Generally, when any business publication, or in this case company newsletter, invokes Karl Marx, it's usually as kind of a talisman to ward off the evil effects of critics of any failings of capitalism. But in the real world, there are recurring practical problems with capitalist economies, some of which Marx and his 19th century followers perceived even then. Grantham writes:

Karl Marx went on and on about the tendency of capitalism to so fixate on growth that in time it would forget the need to put on a friendly face for society and would drive home too clearly and brutally its advantage over labor. Ironically, in some way he and Engels looked forward to globalization and the supranational company because they argued it would make capitalism even more powerful, over reaching, and eventually reckless. It would, they claimed, offer the capitalists more rope to hang themselves with or, rather, to be hung with, in the workers’ revolution. The rope for the job, they suggested with black humor, would be bought from briskly competing capitalists, eager till the end for a good deal. Well, time marches on and it’s going to be hard to have a workers’ revolution with no workers. Organizing robotic machine tools will not be easy. However, Marx and Engels certainly got the part right about globalization and the supranational company increasing the power of capital at the expense of labor. To interfere with Marx's apocalyptic vision, we need some enlightened governmental moderation of the new globalized Juggernaut (even slightly enlightened would be encouraging) before capitalism gets so cocky that we have some serious social reaction.

But for me capitalism’s complete fixation on growth at all cost that Marx concentrated on is not as important as the other issues discussed here. Capitalism, by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence. Fifty and one-hundred-year horizons are important despite the "tyranny of the discount rate," and grandchildren do have value. My conclusion is that capitalism does admittedly do a thousand things better than other systems: it only currently fails in two or three. Unfortunately for us all, even a single one of these failings may bring capitalism down and us with it. [my emphasis]
This isn't something you're likely to hear Barack Obama or Republican candidates for the Presidency say: "Capitalism, by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence." This is also something that classical economics, including its Marxist variety, recognized scarcely if at all in the 19th century. They saw nature primarily as an object for human activity. Which of course it was and is.

But idea of overloading the physical capacity of the planet to support humanity was not a primary concern. The main form in which it appeared in the 19th century was in Thomas Malthus' worries about overpopulation, which were deeply flawed, as subsequent events have shown.

The rest of the statement quoted above, though, is typical business-press puffery. No, we don't have capitalism with no workers. As Keynes understood even in the 1930s, we have an economic system in the developed world that could provide necessary employment and income to everyone while requiring less working hours than are typical for the employed even today. See Keynes' Economic Possibilities for our Grandchildren (1930).

Marx and other critics of capitalism saw fairly early that capitalism had a boom-and-bust tendency, which is today commonly known as the business cycle. It's existence is fairly noncontroversial, though in today's Republican Party with its often sneering hostility to science, it would be surprising to find some people hotly disputing it. The New Deal instituted stabilizing mechanism like better regulations on banks, deposit insurance, Social Security and unemployment insurance that have even now prevented the United States from having as severe an economic downturn as the Great Depression. Although, as Paul Krugman has been pointing out, in some parts of Europe like Britain, the current one has arguably already been worse. And it isn't over yet. With the neoliberal ideology embraced by corporate Democrats and, in a more extreme form, by the Republicans, those stabilizing mechanisms here and in Europe have been seriously compromised. And if its advocates have their way, will be compromised further.

If we want to get all geeky and historical here, Marx and his 19th century followers in the Social Democratic parties did see a tendency in capitalism to impoverish the workers. And they did see the globalizing tendencies of the system, though they could hardly have foreseen the present-day role of derivatives or the International Monetary Fund. The pollution of the air and water was evident in the 19th century, but the scope of today's environmental challenges with global climate change was not yet in sight.

The notion of the progressive impoverishment of the workers was based on English political economy, and on the work of David Ricardo in particular. But Marx and the Social Democrats did see that pressure from unions and from workers parties could force the adoption of reforms that would counteract that tendency to some significant degree, even before the rise of the Revisionist movement within Social Democracy in the 1890s, which was focused entirely on reform and rejected a fundamental reorganization of capitalist economies. In Marxist theory per se, the coming to power of the working class and the transformation of capitalism into socialism was seen as the result of the internal contradictions of capitalism embodied in the class struggle between workers and capitalists. They didn't understand that contradiction as being strictly dependent on the impoverishment of the workers or the impossibility of reform within capitalist economies.

What we do see in today's globalization - a fuzzy but common term - is that, whatever theoretical frame one places it into, that the capitalist system does have a tendency to create severe inequality which produces genuine misery for significant portions of the population. And the tendency to cyclical crises/depressions/recessions/business cycles is still very much with us. That the damaging features of the system can be mitigated by reforms is not in serious doubt. That the One Percent will resist such reforms is also in no such doubt.

One thing the Occupy movement accomplished is widespread alteration in vocabulary. The opening sentences of the Businessweek article linked above are, "The top 1 percent is hardly known for its altruistic, sharing-is-caring streak. Self-interest and self-absorption are more its M.O., as illustrated in my colleague Max Abelson’s at once hilarious and terrifying look at Wall Street 'bonus withdrawal.'"

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