Friday, January 30, 2004

The Keynesian Ways 


You ask -

"Specifically, what was wrong with the old ways of the 'Keynesians'?"

Their trouble was that, by the end of the 1960s they had succeeded far too well. They had transformed economies and, with it, societies. The economy and society that I knew in the 1960s and that was still going from strength to strength, was in utter contrast - it was whole worlds away - from the economy and society in which I had grown up.
Where the Keynesians "failed" was in not being able to convince those who ruled our economies and societies in the late 1960s that this new Keynesian economy and society could not be maintained in good working order by the worn-out economic dogmas of the past.
You see this application of old ideas in the policies of the Nixon Administration and the Fed in and after 1969.
The policies then applied only made things worse.
The anti-Keynesians and those who wanted to spread their own "remedies" then leapt at the opportunity to blame, not the success of Keynesianism and the muddleheaded policies mistakenly undertaken to sustain it, but Keynesianism itself.
The accusation of Keynesian "guilt" was a perfect strategy by those who had seen their interests damaged by everything that had happened to create a more stable economy, with growth, from the New Deal onwards.
It was a perfect strategy for the Hayeks and those who had chosen "The Road to Serfdom" as their bible.
And it caught on - splendidly - throughout the world.
The system that had saved the world, in economic and social terms, after WW2, was condemned as the fount of all our troubles.
Who stood up to say otherwise?
I know of very few who did. Indeed I cannot recall that, in the crucial years of 1969 and afterwards, anyone really put the case for Keynesian policies effectively - and they still do not.
I did put that case right from the start - just how effectively is for others to judge. At that time and afterwards, I regretted that Keynes was no longer with us. If he had been, I said, he would have seen more clearly than most - if not all - just what changes - highly beneficial to world economic, social and political stability - were needed.
He was no longer alive and there was no one of his quality to take his place.
The drudges of the "science" of economics were left to command the scene alone.
We see the result today in economic instability, dramatic social inequalities, strategic uncertainties and the world's most powerful political units without any real clues about where to go.
Just as in the 1930s, there's now a feeling that we must somehow hold on and, like Mr Micawber, hope that something will turn up.
We'll be extraordinarily lucky if it does.
Might I just add one or two thoughts?
There is still - thirty years after - some tendency to blame the "oil shock" of 1973 for the inflationary and other problems of the period.
That is of course a nonsense. The 1973 oil crisis did not make things any better. On the contrary, it accentuated our problems. But our problems with inflation, stability, growth had started at least four years before. They were well into their stride before the oil crisis hit the fan.
The other thing is that, for thirty years, economic theory and policy have consisted largely of a succession of catch-cries.
We've had money-supply and supplyside, the free market and privatisation, free trade and globalisation....
There is no need to condemn the ideas behind the catchcries completely and unequivocally.
For example, the idea that some nationalised industries or activities should be "privatised" could make sense. A trend to nationalise just about everything - if it existed - needed to be stopped before the obvious advantages of a robust private-enterprise system were destroyed.
But weak minds always grab hold of a simple idea and race off recklessly with it.
Once the idea of "privatisation" got some currency, every weak mind grabbed hold of it - and the strong-minded anti-Keynesians saw the glittering gains that it could mean for them.
Privatisation became a cult and has reinforced the other features that have bred instability, low growth, inequality and the rest.
In the world's number one economy - at the moment number one; others are catching up - a particular danger has arisen from privatisation of security and defence-related industries. So the wheel is perhaps coming full circle. From the threat that nationalisation would convert a private-enterprise economy into a centrally controlled, socialist economy, we are now reaching to the point at which a too-private economy might be or is already being transformed into a corporate/fascist economy - and fascist political and strategic system.
The catchcry of "no new taxes" expressed so succinctly and with such worldwide impact by George Bush senior, preceded him in the "Voodoo economics" - as Bush himself called it - of the supplysiders and Reagan. Again, there was an element of validity in the concept of reinforcing the supplyside; but it got hopelessly distorted in the way it was implemented. Instead of leading us back to a well-managed Keynesianism, it led us into the financial instabilities that are becoming increasingly apparent in the second Bush Administration.
So we come back to the question, "What was wrong with the old ways of the 'Keynesians'?"
The answer is that their ways were, in practice and with proof over a quarter of a century, the best that we managed to find during the twentieth century. They lifted us out of the despair of the 1930s after fighting a war that was, in part at least, a product of that despair.
However, like all systems or policies or whatever, they themselves brought about changes of an economic, social and political kind that, after a period, called for modifications. If we want to be precise, that point was reached round about 1969.
The fundamentals of Keynesianism remained valid; what was needed was to adapt them to the new circumstances they had created.
Now, after thirty years of wandering in the wilderness, we still need what would be, fundamentally, Keynesian approaches and Keynesian policies. They would be based, essentially, on the same means of promoting and maintaining investment, productivity and production, as those we depended on in the 1945-70 period. However, we would need to implement those policies in the light of the economic and financial, social, political and strategic situation as it exists right now in 2004.
We should not look for another catchcry - Keynesianism instead of monetarism or privatisation or globalisation, but a rounded consideration of what economic policies are needed to give us stability and growth - prosperity and more equality - a planet at peace that looks wisely at its own health and those who are sustained by it.
This is not an impossible task; but, for thirty years and more, we have been impossibly inept at going about it.

James Cumes

Tuesday, January 27, 2004

The Son of Star Wars 

Australia should proceed with the 'Son of Star Wars' project quickly.
By James Cumes
Posted Tuesday, January 27, 2004

The decision of the Australian Government to join the American Anti-ballistic-missile Program revives the debate, perhaps more on the question of how necessary the program is than on whether it is likely to succeed.

The Non-Proliferation Treaty and other elements of dissuasion have slowed the spread of nuclear weapons but they have not stopped it. Nuclear knowledge, whether peaceful or other, is now more available than ever before.

Restrictions on the development of delivery systems, as distinct from nuclear, chemical and other mass-destruction warheads, are less than those on nuclear weapons and several non-nuclear countries now possess or are moving towards acquisition of the capacity to build intercontinental missiles. China has recently sent a man into nearby space and promises to send a man to the moon. Others will follow the same course.

In the past, the development of nuclear weapons and long-range delivery systems has been confined to the major powers - the superpowers or their nearest rivals. They have had, for the most part, responsible governments or, in any event, governments that are aware of the odds on provoking their own self-destruction.

That has been changing for some years now, with the spread of nuclear and long-range ballistic knowledge and, most importantly, with the terrifying proliferation of what we have come to call "failed states”. There are now dozens of states around the world who have what we may call unstable governance and who are exposed to pressure, manipulation, corruption and, ultimately, domination from outside. The United Nations Charter still carefully protects the sovereignty of these states and their right to develop, in domestic security, their capacity to destroy or initiate the destruction of the rest of the world.

Even more dangerous perhaps has been the extent to which all governments, of failed or unfailed states, have abdicated their sovereignty to private interests, including those in the defence industries. Private armies and private arms dealers have proliferated much more than overt nuclear-weapons capacity; and powerful defence-industrial corporations are increasingly influential with, if they do not dominate, United States Administrations.

We desperately need to bring balance and control into these developments. Among other things, we need to review our notions of national sovereignty and international law. We also need to review our notions of the extent to which our governments should abdicate their sovereignty to private interests, and so put at risk the survival of the societies themselves.

These are fundamental issues and, even given a will much greater than is currently apparent, will take a long time to resolve.

In the meantime, we must acknowledge the dangers inherent in our present reckless arrangements, including the danger that megalomaniac elements might destroy, in a sudden cataclysmic incident, all that our civilisations have built up over the centuries. To guard against those contingencies, we need safeguards of many kinds. One of those would seem to be to develop, as quickly as we can, a reliable defensive system which can deflect or destroy weapons of mass destruction and their delivery vehicles, launched against us by renegade states, groups or individuals. We may not succeed in developing a reliable system but it is imperative that we try.

That is the justification for proceeding as rapidly and energetically as we can with the "Son of Star Wars" project or other enterprises with a similar purpose.

In conclusion, as the author of the novel Operation Equalizer, I must confess to what might be seen as a vested interest in the notions I have put forward above. That does not, I hope, make it any less crucial that we debate fully and responsibly the issues which Operation Equalizer raises.

Dr James Cumes is a former Australian Ambassador and High Commissioner and founder of Victory over Want.

Sunday, January 25, 2004

Suicide by Young Australians 

Extract from The Multiple Abyss, written about 1997:

Supporting evidence for the increasing tension affecting an unusually large number of individuals seems to be contained within the statistics for suicide, especially among younger people. In the period from the end of the Second World War until the late 1960s, the suicide rate among young Australian males was low and stable. That was a period, at least until the 1960s, when the social mores and rules were explicit and fairly universally observed. In most areas of life, there were clear disciplines which were widely acknowledged and well-defined. The individual member of the society had no need to decide what to do in most social situations, what to wear, even what and when to eat. The society laid down the rules, those rules were relatively simple, they persisted over time and all that was needed was to follow them.

Then a dramatic change began. Routines of the past were no longer to be relied on. Ways of behaving, of dressing and all the rest were for individual choice. Families were less available as a refuge in times of stress. The old certainties about a career vanished. Financial difficulties abounded everywhere - for those in the cities as well as those on the land. As these social changes occurred, the suicide rate among young Australian males, aged 19 to 24, began to rise dramatically and, by the mid-1990s, was the second highest in the world. Moreover, the male rate was about six times the rate for females in the same age group. In some age groups, suicide was the largest cause of death among young males.

Why was this? One feature that immediately stands out is that the increase in the suicide rate coincided with the breakdown in economic stability - and the consequent social degeneration - from the late 1960s onwards. This might indeed be no more than a coincidence but it deserves examination.

Many of the instabilities of the last quarter century have especially affected young males. Unemployment has become high, widespread and chronic. Many of the long-term unemployed are over 40; but the highest percentages of unemployed at any one time have been among the young. In some areas, it has not been unusual for youth unemployment to rise to 20 or even 30% and for this to persist. Some of the young unemployed are university trained or tertiary educated, but most are unskilled or poorly skilled. The common and persistent prospect of long years of unemployment and, when work does appear, of low-skilled, poorly-paid jobs can lead either to revolt against the society, expressed often in criminal activity or to a sense of despair.

But it goes much further than this. The difference in the suicide rates of young males and young females is striking. There may be many reasons for this and it would be facile to identify one single cause. But a first inference is that young females are generally more satisfied or less dissatisfied with their lot than young males. In some ways, this is surprising. The feminist revolution has brought some advantages to young females: career opportunities are much more extensive, discrimination and sexual harassment are supposedly less or more subject to regulation, equality before the law purports to be improved (though far from perfect) and so on. These advantages can be greatly exaggerated, especially for young females who cannot aspire to leadership roles, who remain unskilled and who, in general, lack the capacity to exploit the progress in female rights which has taken place.

Indeed, these women, outside leadership categories, are in many ways much worse off than in earlier generations. They have lost much of the protection that families and the society in general once afforded them and a consequence of their greater personal freedom is that they have to make more decisions themselves and are more exposed to risk of error. So, while they have fewer close family or others to consult, their circumstances are such that they need to consult more on many more issues than in previous eras. Now they must decide on moral issues which the society's rules once decided unequivocally for them. For the strong in spirit and intellect, independence can be a marvel. For the less strong, it can be a torment and a prelude to personal disaster. Young females at puberty and during their teenage years are now exposed to risks and temptations with which the weak and unprotected have little capacity to cope. Sexual liberation brought women many freedoms and satisfactions but it exposed them much more than before to predators and the weak and impressionable among them to exploitation. Teenage pregnancies increased, single mothers became commonplace. The most impoverished sectors of the population are often young mothers, without skills or family support. The old shames have gone but many young women are totally dependent, for themselves and their children, on public welfare. That public welfare is usually ungenerous, often inadequate and given less willingly than it once was. And yet, strangely, the suicide rate among young females is comparatively low - something like a sixth of the rate among young males in the same age groups.

Again, we must ask why this is. The answer might be that, despite the vicissitudes through which so many young women go, the female "vision" of a satisfying life is met - or more nearly so - whereas the vision for equivalent young males is not. For the young male, unemployment dims the vision; but the problem in recent years may have been much more troubling even than that: there is now no vision, no enticing prospect for the future at all. The outlook is utterly blank. We can go back to the 1930s for a period when young males had little to inspire or motivate them. Certainly, there was little to conjure up enthusiasm for what was then a failed democracy and a failed capitalism. But there were alternatives. One of the persistent alternatives was a socialism which took many forms from social democracy to communism, from a Fabian progress to the socialist Utopia, to a revolutionary grab for power by communist revolutionaries. And, of course, there was fascism in which those of more right-wing inclinations could look for some desperate escape from the nullity that was all that democracy in those days seemed able to offer. So, despite the torments of the 1930s, there was always a feeling that alternatives were on offer to deliver a more satisfying life and that opportunities were there to campaign for and install these alternatives in the palaces of power.

In other words, young males could do something about their frustrations. However dreary the present, at least there was something of a better or more exciting future to hope and work for. Even Hollywood offered an escape that the violence of the modern screen, whether the small TV and video or the large cinema, does not now seem to do, except in an extreme and unfocussed direction. "Mad Max" is a poor substitute for the escapism of "Brewster's Millions" and the "Andy Hardy" series or the touching and hopeful moralities of Spencer Tracy and Bing Crosby.

The striking feature of the present situation is that there is no left-wing alternative to which the young male can look for a vision. Left-wing parties have moved to the middle ground, most of them now being distinguishable only with difficulty from the conservatives. Of Britain it has been said that, when George V called on Ramsay MacDonald to form a National Government in the depths of the financial crisis of 1931, Britain lost an Opposition for the next four years, during a time when a genuine Opposition was badly needed. If Britain needed an Opposition in those dark days, not only Britain but the Australian and several other governments around the world desperately need a genuine Opposition - a genuine alternative government - today. But not only do they not have one but they have much less prospect of acquiring one than they did in the 1930s - unless of course it emerges from a crisis so deep and devastating that only an Opposition of a most extreme kind will serve the disaffected.

For the moment, in the mid-1990s, all political parties belong to the centre and there is virtually nowhere for the depressed, the disaffected and the desperate in any of our so-called democratic societies to go. So there is no choice for the young male, especially the unskilled young male, looking for what Australian Labor Party leaders used to call "the light on the hill". There is no escape for the young male looking for some way out of the emptiness of the life which is all, in the 1990s as it was in the 1930s, that a failed economy and society and a failed political system can offer him. The only vision he has is of political and social institutions which have manifestly been found wanting in his terms and which he knows have no remedies to offer him in the future. For his unfortunate generation, there is no "light on the hill". Not only has the light been extinguished, but, in all but name, the Labor Party itself has disappeared and the trade unions that support the present Labor-Party pretender are powerless or have betrayed their members to a capitalist madhouse.

Is that why the young Australian male seeks escape in suicide - because there is nothing for him to look forward to, nothing for him to struggle for or aspire to? In Australia to a marginal extent and in other countries to a greater extent, some young males have found some escape in a form of neo-fascism or neo-nazism. Some of them are inclined to blame some "alien" elements in the community. Jews were a target for Hitler; and to some extent they seem to have emerged or to be emerging as a target again. But, though anti-semitism is present, it is not so far widespread. That does not mean that, in the future, the young Australian male might not blame the emptiness and frustrations of life on some "foreign" element in the community. However evil and deplorable, that would be understandable. In the absence of anything better, it would provide some sort of "vision", some sort of escape. But, although extreme right-wing movements are not unknown in Australia, they are not yet significant. Is that why the young male finds life so valueless that he wants to end it? We don't know. We can only hope that extreme right-wing movements, with their record of tyranny and destruction of human life and values, will not, at some time in the future, be used as a desperate last resort to put value back into the life of the young male or anyone else.

What is true is that the young male needs to be able to satisfy his manhood - to be able to assure himself that he is a man with some sort of worthwhile purpose. In past generations manhood has often been tested in war. Almost every generation in the last couple of hundred years - with a gap for the so-called Pax Britannica - has been called upon to take up arms. Traditionally, manhood has been tested too in sport - often in such rougher manifestations as boxing and Rugby - and in the satisfaction of many kinds of personal ambitions. He might aim to run his own property, his own business, to succeed in a professional or trade career, or he might get fulfilment in a relatively unskilled job which nevertheless satisfies the male urge to do something useful, within the society, and to "belong" in some enterprise with his mates even though he may not be a leader or a prominent performer. In recent years, opportunities to realise even such quite modest ambitions within the society have been declining. The idea has been declining too of the male as the staunch support of the family. His status as the family's sole support has become increasingly a rarity except during limited periods of childbirth when his wife or partner cannot work. At those times, of course, in our present society, it is very possible that the husband or male partner may himself be unemployed.

The young male might therefore have lost his sense of manhood; he might have no satisfying vision of the future; and he might have little sense of any responsibility towards his family. Perhaps it is too facile to conclude that these are the main causes of the high suicide rate among young males, in Australia and elsewhere, but they are plausibly contributory factors.

If the individual rejects the idea of escape through suicide, what then is the path which men - and women, for that matter - should take to resolve their life's dilemma. For the young women we have identified above as burdened or blessed with children but denied the support of a husband or family, the only resort may be dependence on public welfare and resignation to poverty, for both the mother and her children. Some of those children will find their way out of a cycle of poverty, poor education and chronic unemployment and eventually make satisfying lives and careers. But the large majority probably will not. This will increasingly be the case as access to a good education becomes more and more difficult and so expensive that it is effectively available only to the relatively rich.

Even in the difficult years of the Great Depression before the Second World War, education was genuinely free up to a fairly advanced level and remained inexpensive thereafter. In Australia - and the position was not very different in other advanced economies - primary-school education, from the age of five to fourteen, was without cost to parents at State schools. Most State schools were of good quality - indeed of such quality that they probably delivered a better basic education than private schools. Secondary education, from the age of 13 or 14 to the age of 17 or 18, was again virtually free, if the child won a State scholarship which was easily obtainable by a quite average student. Standards in State secondary schools were as high as in private schools, although the old-school-tie factor could be important in later life. There were some costs for books and, after the age for compulsory education of 14, continuing full-time education involved a loss of potential earnings. If the student matriculated and went to university, costs were greater, especially in such faculties as medicine and dentistry. But in most other faculties, fees were tiny: in Australia, each subject cost about one guinea a term (a little more than $A2), plus cost of books. A student could stay at a first-class residential university college, with full board, recreational facilities and some tutoring, at a cost of thirty shillings ($A3) a week. That was in the poverty-stricken decade of the 1930s. The pound/dollar had a much greater purchasing power than it has now; but even so, the real costs of education to the highest level were small. The situation is very different today, even allowing for the fall in the real value of the currency.

Public education is no longer free and often no longer good. More and more parents seek out private education of some kind for their children but only the relatively wealthy, probably with both parents regularly employed in well-paid jobs, can afford it. University or other tertiary education is similarly expensive. The absolute numbers and the proportion of students completing high school and university have increased dramatically in Australia, for example, in the last decade; but the absolute numbers left behind have increased too. This has to be put in the context that, fifty or sixty years ago, university education was so special that many and varied careers were open to those who never saw the inside of a university or even completed high school. For example, fourteen-year-old recruits to State and Commonwealth Public Services in Australia, with little or no secondary education, could aspire to the highest positions in the Service and many realised those aspirations without any further formal education except to pass an internal "clerical" examination. Those prospects no longer exist and many other careers are simply not available for those without tertiary education.

The social effects of this exclusion of so many from a meaningful and satisfying role in the economy can be debilitating. The society loses mobility and becomes sharply divided into economic and social groups, with only limited opportunities to graduate from a lower to a higher group. Moreover, many even in middle-income groups may not be satisfied with their present "affluence" or their prospects. The middle classes in such countries as the United States, Britain, Canada, Australia and New Zealand have not done well since 1970. They have achieved some material improvements in their levels of living; but most have done so only through a change of life style which has entailed severe social and family costs. Total burdens on energy and time in earning their income are heavy; attention to home and children has declined; and recreational activities have retreated to the margin of most people's lives. Moreover, they seem unable to look forward to any more satisfying way of life in the future. The hopes and expectations of earlier generations for the ease and comfort that a successful professional or business career will bring have largely disappeared. The enjoyment of the civilisation to which they purport to belong - the enjoyment of the civilisation and culture which their grandparents knew - is no longer available to them, at least in the leisurely form it once was.

As for the lower-income groups, the outlook has become desperate. They have been denied the protections of the past, whether of family, government or community. Some charitable organisations still offer help but they are overwhelmed by the demands of the most desperately needy - the drug addicts, the homeless, the alcoholics, the runaway children, the sick and uncared for. The protection of trade unions has largely disappeared. Union membership has been in decline. Those who remain in unions tend to be the more highly skilled and highly paid. They feel little identity with the unskilled and, generally, with those at lower-income and "underclass" levels. In effect, a modern "proletariat", who were once members of a variety of unions for the unskilled, are now without effective union membership and support. From the unions evolved political parties which used the democratic system to protect and promote the interests of unionists and workers generally. But the "workers'" parties no longer exist. Those parties which call themselves "Labour" and purport to be "workers" or socialist or social-democratic parties have moved so far to the middle or even the right that they are no longer dedicated to working-class or lower-income interests as their equivalents once were. Like Ramsay MacDonald's National Government, they are conservative in government and no less conservative in opposition. In making this transition, they have left much of their former constituency disenfranchised.

To take an example, the Labor Party was in power in Australia from 1983 to 1996 - the longest continuous period for a left-of-centre party in the country's political history. But it abandoned traditional policies of protection and promotion of the interests of even the diminishing number of trade unionists whom, at the political level, it is supposed to represent. Overtly, the Labor Government was close to the Australian Council of Trade Unions and negotiated a succession of Accords with the ACTU after 1983. These purported to give a fair deal to trade unionists in terms of wages and conditions of work and the ACTU leadership took as much pride in them as the Government. But the fact was that the trade unionists and the lower-income groups generally bore the brunt of the economic turmoil after 1983. Their financial rewards declined in relation to those of management. Their conditions of work were determined so as to minimise industrial conflict rather than promote the interests of the workers. Successive Labor Governments introduced a form of "management" of the economy that inevitably favoured the interests of the higher-income groups at the expense of those to whose interests a workers' government purports to be dedicated.

The Hawke and Keating Governments increasingly left the economy - and consequently the society - to the mercies of the market. The unregulated, capitalist market, which the workers and their political parties had been accustomed to regard as an adversary which, because of the threat it constituted to working-class welfare and progress, they must bring under control, was now exempted, as far as possible, from any control at all. What the Labor Party had been accustomed to regard as a capitalist instrument for exploitation of the workers was now left free to do as it liked, uninhibited by government or, so far as possible, by any other regulatory authority. The Hawke and Keating Governments acted more and more without regard to whether the "free" market would serve the interests of the workers who were, in theory, their special constituency. Their only concern was initially to acquire and then to maintain themselves in power, a position which was not unique to the Australian Labor Party and which was indeed, much more overtly, adopted by other so-called left-wing, socialist or labour parties. The British Labour Party, in Opposition, especially under Tony Blair, moved dramatically to the right, not in the interests of its working-class constituency but blatantly in order to take power from the long-running Conservative Government, at whatever cost in terms of betrayal of their political philosophy or their traditional constituency......

The social degeneration that the government's abdication of its role has caused has not been identified with any real clarity. A society which is patently unequal, which is patently unprotective of the interests of all its members cannot survive and does not deserve to. Certainly, it cannot survive without turmoil, probably violence and bloodshed and perhaps open revolt and revolution. The only question is when a major confrontation will occur. In Australia, the political tradition has never favoured violence or revolution. Political stability is characteristic of a system that contemplates gentle evolution towards - as Australians have imagined - a fairer, more egalitarian, more democratic society. Australians seldom get angry about political and social conditions. They get angry about other things; but no federal politician has ever been assassinated and few have ever been assaulted - at least for political reasons. No one wants to advocate violence but it may be a matter for regret that Australians and some other Anglo-Saxon societies do not get more angry about what their political masters do to them. If they did and if they were to show their anger within the existing political system, perhaps the ultimate confrontation, if and when it comes, would be less shattering than, at the moment, it threatens to be.

Friday, January 23, 2004

The Quest for a New Consciousness 

"The new consciousness is utterly different. It seeks restoration of the
non-material elements of man's existence, the elements like the natural
environment and the spiritual that were passed by in the rush of material
development. It seeks to transcend science and technology, to restore them
to their proper place as tools of man rather than as the determinants of
man's existence. It is by no means anti-technological, it does not want to
break machines, but it does not want machines to run men. It makes the
wholly rational assertion that machines should do the bidding of man, of man
who knows and respects his own nature and the natural order of which he is a
part. The new consciousness seeks new ways to live in light of what
technology has made both possible and desirable. Since machines can produce
enough food and shelter for all, why should not man end the antagonism
derived from scarcity and base his society on love for his fellow man. If
machines can take care of our material wants, why should not man develop the
aesthetic and spiritual side of his nature? Prophets and philosophers have
proposed these ways of life before, but only today's technology has made
them possible. [The new consciousness] could only have come into existence
given today's technology. And only [the new consciousness] can make possible
the continued survival of man as a species in this age of technology."


You make many points, many of them valid, in your latest message.
The piece that I have quoted above was written more than 30 years ago. What
it is saying seems more pertinent today than ever.
If you were ever to have the good or ill fortune to read my book, The Human
Mirror, you would come across the following -

"Thirty years ago, many people's hopes were high. Charles Reich wrote of a
visionary American consciousness of the late 1960s and early 1970s: 'The
extraordinary thing about this new consciousness is that it has emerged out
of the wasteland of the Corporate State, like flowers pushing up through the
concrete pavement. Whatever it touches it beautifies and renews: a freeway
entrance is festooned with happy hitch-hikers, the sidewalk is decorated
with street people, the humourless steps of an official building are given
warmth by a group of musicians. And every barrier falls before it. We have
been dulled and blinded to the injustice and ugliness of slums, but it sees
them as just that - injustice and ugliness - as if they had been there to
see all along. We have all been persuaded that giant organisations are
necessary, but it sees that they are absurd, as if the absurdity had always
been obvious and apparent. We have all been induced to give up our dreams of
adventure and romance in favour of the escalator of success, but it says
that the escalator is a sham and the dream is real. And these things,
buried, hidden and disowned in so many of us, are shouted out loud, believed
in, affirmed by a growing multitude of young people who seem too healthy,
intelligent and alive to be wholly insane, who appear, in their collective
strength, capable of making it happen. For one almost convinced that it was
necessary to accept ugliness and evil, that it was necessary to be a miser
of dreams, it is an invitation to cry or laugh. For one who thought the
world was irretrievably encased in metal and plastic and sterile stone, it
seems a veritable greening of America.' (17)

"Three decades later, after the fading of the caring and visionary
society, the rise and fall of the junk-bond buccaneers, the slapstick
politicians in the Reagan/Thatcher mould, the vision splendid has blurred.
The happy hitch-hikers have gone, the greening become a browning. The
escalator of success is no less a sham than thirty years ago; but the young
no longer believe that the dreams of adventure and romance can be real. No
longer are the flowers pushing up through the concrete pavements; the
sidewalks are no longer decorated with street people but cracked and crowded
with homeless beggars; injustice and ugliness are again accepted as part of
the inevitable human destiny. Communism is dead but, for most, victorious
capitalism is only slightly less gruesome than its defeated rival. Now we
need a new vision, a new image, a new consciousness of self. We will get it.
Our looking-glass fantasy refuses to accept that we won't. But it had better
come quickly - before catastrophe, from the demise of dreams, beats it to
the finish line."

I'll have a new novel appearing shortly, in which the title character,
Uncle Rupert, abandons his steady job in a bank to go carrying his swag on
the track. From there on, he seeks individual freedom, while trying to help
others. He comes to see petty tyrants like the banker Mr Harfglass as
victims more than villains. He sees the inequities and iniquities of the
system and tries to do something to correct them.
It's just a story of course - a piece of fiction - but it does try to say
some of the things to which you have given expression.
All best wishes to you.

James Cumes

----- Original Message -----
From: "Barry Brooks"
Sent: Friday, January 23, 2004 9:36 AM
Subject: Re: Inflation,Stagflation and Unemployment


Values do change. The values we cling to were
appropriate until recently. Now, we face great pressure to
address the limits to growth. The greatest obstacle to
building an efficient and durable world is our attitude toward

The things you say are correct. "Employment" is not just a matter of
It's a matter of being a member of society, of individual satisfaction and
identity, of being human....

That is the current state of affairs, but if one asks an anthropologist the
answer is likely to be that such social values always adapt to circumstances
in societies that prosper. Only because of wage dependence we need work.
The identity part is a result of cultural conditioning. It is not written
in stone.
How long to you suppose that attitude has prevailed? As you may know, the
leisure ethic has been part of English upper-class life for ...? They seem
like it.

It reminds me of the book, "The Social Construction of Reality," by Berger
Luckman. It may take generations to refine the work ethic, but we shouldn't
wait that long to end waste.

Work has not suddenly become bad. I will always be supported by
ethical considerations, but a society that makes work the main source
of identity is a slave society, with physical chains or the chains
described by Huxley.

If dividends are worth fighting for why is welfare so bad? Should
wages be the only source of income in an automated economy?
In a fully automated economy all income would be unearned, but
for socialists wages are the only respectable form of income.

In the USSR their constitution had the provision that he who
doesn't work; doesn't eat. If it weren't for our wealth minority we
would probably have a law like that too, because everyone else fully
embraces the socialist worship of work. The service of the rich begs
the question as to the line between work and play. Except for those
few who may do light duty to keep up appearances the rich people I know
enjoy all the freedom from work they can get. For stories about
work among the rich see, Lundburg, The Rich and the Super Rich"

No one has said that those who need to or want to can't
work as much as they want. People can work for extra money,
if they qualify for one of the few paid jobs are really needed in
an efficient automated economy.

Firemen, teachers, doctors, repairmen, etc are a net cost. We
would be economically better off if we didn't need them.

Or if egos need stroking there is always harmless busy work, like
stroking backs or singing songs, that doesn't waste our scarce
resources or pollute this little planet. Sport activities could be
though of as work. However, these kinds of activities are so removed
from the processing of the wealth of nature that really makes a profit
that they should really be unpaid work.

Now, we are, in effect, forcing people to work, because if
they don't their income will fall to zero after a little while.
Must it fall all the way to ZERO?

What about all the unpaid work, like motherhood that could
be done properly if people weren't too busy being wage slaves?
We could give unpaid work its due respect.

Unearned income makes more unpaid work possible.

We could give unearned income the respect it deserves too. Living on
profits is still not quite respectable enough to replace working for a
even though we have been know to thank God for the gift of our food and
been known to fight to defend the right of a few to receive profits.

We have lost sight of the goal of economic activity. It is to provide goods
and services. Any work that may be involved is just a means to an end.

We have let the means become the end.

We need some quick ethical evolution. It may be hard,
but we can take a different attitude. After all, the stakes
are sustainablity or disaster. Are we just going to fight for
the dwindling space, water, air, and oil? There is another way.
Physical laws will not change, but we must. We can change
and we will, sooner or later.


Thursday, January 22, 2004

Employment as a Human Need 


Just think about it.
"Employment" is not just a matter of economics.
It's a matter of being a member of society, of individual satisfaction and
identity, of being human....
For most people - yes, there are exceptions - to be "employed" - to be
"doing something" - is to be alive, to give his or her life some purpose...
To be "unemployed" is, for most people - again, there are exceptions - to
"waste" what could otherwise be a "productive" life where productive is used
in the widest sense and goes beyond items that might have a price in the
There's a story - which may be a fiction dreamed up by the ultra-rich - that
the Rockefeller family hated "waste." They refused to waste food or
clothing; they were said, for example, to turn off lights when they left a
Above all - so the story goes and I repeat that I cannot vouch for it - they
hated the "waste" of idleness.
So, despite having so many financial and other resources at their command
that they never needed to "work" or to be "employed", they nevertheless
"employed" themselves in political and social, as well as corporate
activities. They did not "waste" their lives away in idleness.
I think we gravely underestimate the damage we do to people by condemning
them to unemployment. It is not merely a matter of income. It is a matter of
identity, of self-regard, of being a member of a team or group, of
participating in society......

"Should you go home and open cans to keep you can opener busy?"

Yes, if nothing else is available to employ the man/woman who opens the can.
We used to talk of "digging holes and filling them up again" and of "work
for work's sake".
That's not ideal. Much better is employment that calls on the skills or
experience or genius of the individual worker. Much better is the work that
adds in some way to those things that the society - the civilisation? -
regards as having some value.
I remember that, during the Great Depression, "relief workers" were used,
with pick and shovel, to mend roads and install water and sewerage systems.
The work didn't demand much skill but it was socially valuable, in several
It was not "hole-digging and hole-filling" but, over the long haul, we would
look to work demanding a greater range of skills .
That is one of the worries about the labour situation in the US and
Australia right at this moment. The range of occupations is being or has
been narrowed and too much now seems to be or to be destined to be deployed
in the distributive rather than in the productive trades.
By the way, we have masses of unfilled needs and unfulfilled aspirations to
which resources, whether raw materials or labour, could be devoted. Even in
such rich countries as the US and Australia, there are enormous, even basic
needs of millions of people that unemployed and underemployed labour could
and should be used to meet.
All best wishes to you.

James Cumes

----- Original Message -----
From: "Barry Brooks"
Sent: Wednesday, January 21, 2004 9:54 PM
Subject: Re: Inflation,Stagflation and Unemployment


While your analysis of staglfation is wonderfully clear, you end by saying,
"What is certain, whether thirty years ago or now, is that unemployment
causes, to put it at its lowest, a dreadful waste of valuable human

Is anything that isn't fully consumed wasted? Should you go home and
open cans to keep you can opener busy? No, because its general
idleness provides convenience, and the only reasonable use of your
opener is on an as needed basis. Human labor is no different.

I wonder why you believe that labor is scarce and shouldn't be wasted,
while really resources are scarce and labor is surplus due to automation.
Should we continue to waste scarce natural resources to keep all workers
busy? Now that we have machines we don't need everyone's full labor.

Does life has any meaning other than being productive? Do we earn our
livings, or do we just take the wealth of nature with an automated system?

See, Weisskopf's "Alienation and Economics."


Tuesday, January 20, 2004

Freed Trade and Factor Mobility 


Yours is a most valuable contribution.
There is so much in it with which I agree that it's not easy to pick out one
particular point; but I might just highlight this -

"The worker and the consumer are the same person."

This applies as much, for example, in Australia as it does in the United
States. It applies to the workers in Wal-Mart as much as it does to the
consumers in Wal-Mart.
If the real wages of the workers are driven down, then their capacity as
consumers to consume will be driven down too - or be held up by
unsustainable consumer credit whose collapse can be only a matter of time.
A healthy economy is one in which real fixed-capital investment drives
productivity and production upwards and full employment or at least high and
stable levels of employment are accompanied by high levels of reward for
labour and capital.
There is no way that a sturdy society can be built or maintained on a base
of low levels of demand for and low levels of rewards for labour.
Elsewhere I have suggested that the colonialist/imperialist economies of the
19th and earlier 20th centuries tended to be "extended" economies with
external markets, investment and supply sources. The domestic economies were
marked by chronic instability, volatile labour markets tending to high
levels of chronic unemployment, low wages, marked inequality between the
higher and lower income groups, widespread poverty and poor public
infrastructure especially in low-income areas.
We see these characteristics re-emerging now - indeed, they have already
emerged in such countries as the United States and my own country,
At the risk of being a bore, may I just say again that the economic and
social conditions I have just described led to the greatest and most
widespread depression of the industrial era and to World War Two.
As a result, the world that the battered but enlightened survivors conceived
after World War Two was not one in which world markets and supply sources
would be exploited by and for an exclusive group but one in which a high and
stable growth economy would be maintained at home through well-balanced,
socially just monetary and fiscal policies, at the heart of which would be
dedicated policies of full employment and high, stable rates of real
domestic investment.
The decolonisation that took place between 1945 and about 1970 was a feature
of these policies. Those colonial powers that divested themselves of their
colonies quickly prospered more and more quickly than those who lagged.
Now, in an era of much more, more varied and more sophisticated
international contact, trade and investment, we are returning or have
already returned or regressed to a type of 19th century exploitation.
It is difficult to see how anything but intensifying instability - in the
world political and strategic as well as the economic and social situation -
can follow from these trends.
Let me emphasise that, like Keynes in the 1930s and 1940s, I do not advocate
that the fundamentals of a free, plural, democratic, essentially capitalist
society be overturned. On the contrary, just as in the 1930s and 1940s, the
preservation of such a society should be seen as vitally dependent on
policies that will safeguard the interests of all elements within the
society and promote an affluence - social, economic and political - that
will be shared by all.
With that in mind, we should act urgently to achieve the reform required
before the situation deteriorates further, as you suggest, "out of

James Cumes

----- Original Message -----
From: "Gary Santos"
To: "Robert Murphy"
Cc: ; "Qasim KZ" ; "William
Engdahl" ; "Abe Killian" ;
"Peter Kirsch" ; "Henry C.K. Liu" ;
"Peter Myers" ; "Gavin Oughton" ;
"Peter Wakefield Sault" ; "Israel Shamir"
; ; "Wolfram Graetz, Architect"
; ; "Arno Mong Daastoel"
; "James Cumes" ; "Gunnar Tomasson"
; "David Chiang" ;
"Stephen Zarlenga (E-mail)" ; "Peter G. Spengler"
Sent: Monday, January 19, 2004 11:12 PM
Subject: Re: Free Trade and Factor Mobility

> Mr. Murphy,
> Thank you. As I will be forwarding this email to the private list, I
> now that your article (http://www.mises.org/fullstory.asp?control=1416)
> articulates your position on the above mentioned subject.
> I continue to keep your points in mind and I offer some things I have been
> mulling on. Like I wrote, I am searching for answers. Our earlier email
> still appended below.
> There are different principles at work that make ideas of free trade and
> absolute property rights counterproductive. The auto/buggy whip analogy is
> an not an appropriate analogy. Upgrading telephone technology much the
> In both, I suspect, the employment created far outnumbered the employment
> destroyed as the market broadened and buggies were substituted with a
> Model-T. The demise of the small town phone operator brought about
> employment, again, as the market broadened and more people were needed to
> man provider service not to mention more linemen, more cable laying and
> copper smelting. Moreover, the pace of change allowed people to shift jobs
> more easily and family units, dislocated at first, were able to adjust
> the least pain. This is obviously not the case with the exportation of
> employment and capital investment.
> Outsourcing and offshoring and the technology that supports such models
> not broadening anything. On the contrary, instead of increasing aggregate
> income, jobs are destroyed and wages are driven downward or held in place.
> There are gains for corporate productivity and profits. The worker either
> loses his job or is enjoined to work several more unpaid hours per day.
> That the consumer benefits, I feel, is a too often used slogan whose
> nature becomes apparent as domestic job growth stagnates. The worker and
> consumer are the same person. If this grand plan was embarked on because
> the anticipated baby bust down the road, I'm afraid to say that the plan
> implemented a decade too soon.
> At the same time, I question the benefits the offshore and outsource
> are supposed to have. Financial and trade liberalization has done more
> damage to compensate for the outsourced and offshored employment as other
> industries were rendered unprotected. Wages are not lifted. Wages of the
> jobs created are at pittance levels. Cancun is a manifestation of this
> failure. What was lifted were corporate profits. The appropriate analogy
> not the shift from carriage to autos and, perhaps, the present situation
> best characterized by a new form of sweat shop or slavery that benefits
> Capital or the landed gentry.
> Also, I doubt whether any savings were passed on to the consumer. Instead,
> what I see is domestic production decreasing and increased consumption on
> items imported instead of spurring investment to create domestic jobs. The
> Washington Consensus was flawed in the totality of its concept and in its
> implementation. The spoils of liberalized markets benefit only shared a
> instead of most. I fear that much the same can be said specifically of the
> concepts of offshoring and outsourcing as it relates to the economy and to
> the entire population because the plan, if there is indeed a comprehensive
> plan, does not consider the millieu in which it is being implemented. We
> in a cyclical bottom or, if unlucky, headed into deeper into one.
> The cracks in the super structure are already apparent. Interest rates can
> not be raised. Instead of gaining confidence, the speeches of Greenspan
> Bernanke only served to show that Fed is now on the defensive. Bernanke
> threatens to flood the market with new dollar credits on an unprecendented
> scale. Greenspan claims a victory even while the battle is still being
> fought. Inflation now depends on the domestic policy of foreign
> and on the corporate interests of Chinese and Japanese families. Even now
> these interests are changing.
> In the meatime, even as we continue to experiment with the idea of
> unfettered free trade, tax rebates and increased spending bloat fiscal
> deficits in a magnitude that would make von Mises turn in his grave. What
> makes it worse is that the experiment continues with the nation's debt,
> personal and aggregate, at so high a level that the thought of raising
> interest rates brings up the specter of not just a mild recession. I don't
> see any mainstream economist giving any caution. Or, maybe they are
> quiet on purpose? It seems to me that the experiment that began with
> Thatcher has now gone out of control.
> Gary Santos
> PS. The email below from "Jas Jain", The New Forum, is interesting. No one
> seems to know why money supply is falling even as the Fed is making
> available. Are people paying off debt?
> Money Supply Article: from The New Forum, Jas Jain.
> -------------------------------------------------------
> Deflation Watch - Shrinking Money Supply, Pushing On the String?
> There is some very good news for those of you who have been worried about
> all the money that the Federal Reserve has been printing and that it would
> lead to inflation - the money supply has been falling for the past six
> months! So, rather than printing all that money, the Fed must be now
> destroying some of the old printed money. No? Or, is the Fed now pushing
> the proverbial string?
> Here are some excerpts from Merrill Lynch:
> Money Supply Update
> M2 shrank another $5.5 billion now down about $170 Billion off its summer
> highs. This aggregate has now fallen in six out of the past seven weeks.
> is
> now sinking at a 5.5% 13-week a.r. and the y/y trend, now at 3.9%, is at
> slowest pace since Dec 95.
> The most important, or widely followed, measures of money supply - M2, M3
> and MZM - have been falling for the past six months at annual rates
> 2.3-3.6% (growth being negative) and even M1 has been falling for the past
> three months.
> For the money supply to fall under the current conditions, including the
> easiest monetary policy in decades and all the other stimuli, is quite
> extraordinary. I don't know what exactly it means for the economy, or
> inflation, but monetarists tell us that falling money supply leads to
> deflation down the road with some lag. I personally think that powerful
> long-term deflationary forces are at work and the falling money supply
> just prove to be symptom rather than the cause.
> Jas
> ----- Original Message -----
> From: "Robert Murphy"
> To: "Gary Santos"
> Sent: Sunday, January 18, 2004 8:51 PM
> Subject: Re: Free Trade and Factor Mobility
> > Mr. Santos,
> >
> > First, you can certainly send my emails to a private
> > group, but PLEASE say that I wanted a disclaimer that
> > my emails are written quickly and thus may not be very
> > persuasive. I would also ask that you provide links
> > to my online articles which are better expositions of
> > my views.
> >
> > As far as "drawing the line," again I would say that
> > it only makes the average American poorer when the
> > gov't interferes either with voluntary purchasing
> > behavior (tariffs) or with the use of someone's
> > private property (e.g. shipping a plant to Mexico).
> >
> > It's unfortunate that people may be laid off and have
> > to switch industries, but people were saying this back
> > when the automobile put horse-and-buggy manufacturers
> > out of business, or when automation put workers in the
> > phone industry out of work. Should the gov't back
> > then have "drawn the line" at serious readjustments in
> > jobs?
> >
> > Again, the general argument is that whenever a
> > particular company outsources its production to a
> > different country, because of competition it must pass
> > the cost savings (eventually) on to the consumers. So
> > yes, it might cause pain to the laid off workers, but
> > overall consumers benefit from lower prices. So long
> > as we allow this to happen for ALL goods and services,
> > then even the people who are hurt by a layoff can
> > benefit from the price reductions in most of the
> > products and services he or she buys.
> >
> > RPM
> >
> > --- Gary Santos wrote:
> > > Mr. Murphy,
> > >
> > > Thank you for your reply. However, given that you
> > > have seen fit to do so,
> > > may I repeat the point of my email -- What of
> > > domestic employment? Where do
> > > you draw the line? I personally see that the result
> > > of such unfettered free
> > > trade and liberalization a stratification of society
> > > between rich and poor.
> > > I suspect that if there is any real structural
> > > imbalance at play today it is
> > > this growing, both domestic and internationally, gap
> > > between the rich and
> > > the poor. Beyond the economics of it all, lives are
> > > shaken to their roots.
> > > Probably, 10% of families are dislocated and a much
> > > greater number suffer
> > > uncounted hours to increase productivity. Is this
> > > the vision that von Mises
> > > had for society?
> > >
> > > There must be a balance struck and, if at all, the
> > > shock treatment the
> > > economy is being given is akin to the sad
> > > implementation of the Washington
> > > Consensus. Even Williamson wrote an apologia.
> > >
> > > I also ask your permission to copy furnish our email
> > > conversation to a
> > > private email list of concerned people. Most, I
> > > would think, oppose your
> > > views, I warn you but others, such as I, seek to
> > > point out what I would
> > > characterize as an idea gone wild. The list includes
> > > authors, a former
> > > ambassador and economists. All are regular guys.
> > > Perhaps, you would enjoy
> > > exchanging views?
> > >
> > > Gary Santos
> > >
> > >
> > > ----- Original Message -----
> > > From: "Robert Murphy"
> > > To: "Gary Santos"
> > > Sent: Sunday, January 18, 2004 12:24 AM
> > > Subject: Re: Free Trade and Factor Mobility
> > >
> > >
> > > > Mr. Santos,
> > > >
> > > > Thanks for the email. For what it's worth, I have
> > > > another article on this coming out soon. But to
> > > > answer your question, I "draw the line" when it
> > > comes
> > > > to the government interfering with the decisions
> > > of
> > > > American citizens regarding their private
> > > property.
> > > > If you or anybody else wants to move your capital
> > > > equipment overseas, I'm not going to use men with
> > > guns
> > > > (i.e. the gov't) to try and stop you.
> > > >
> > > > RPM
> > > >
> > > > --- Gary Santos wrote:
> > > > > Mr. Murphy,
> > > > >
> > > > > I recently read your article. Fine arguments.
> > > But,
> > > > > the question still remains in my mind, Where
> > > does
> > > > > one draw the line between goods and services
> > > done
> > > > > abroad? America's competences are not that
> > > legion
> > > > > that will allow an unfettered exportation of
> > > > > employment. 20% unemployment with the rest
> > > enjoying
> > > > > the benefits of cheap consumption? Are we to
> > > become
> > > > > mere consumers? Where does one draw the line?
> > > Should
> > > > > free trade force the economy into a prolonged
> > > > > recession as wages are driven downward and
> > > > > employment stagnant, it will hardly be any
> > > metric
> > > > > for raising any standard of living.
> > > > >
> > > > > Gary Santos

Saturday, January 17, 2004

Inflation, Stagflation and Unemployment 

"Stagflation" was a term that was coined to describe the situation that
emerged in the early 1970s. It combined the words "stagnation" and
"inflation" to describe a phenomenon in which economic growth stagnated
while the rate of inflation increased.
This followed the decade of the 1960s, a decade of phenomenal economic
growth and social advances in which almost everything seemed possible. In
the United States, it seemed to give sturdy embodiment to President
Kennedy's concept of "Why not?" - in other words, we should not doubt our
capacity to reach
"imposssible" goals or to satisfy "impossible" aspirations but, when
an "impossible" project is suggested to us, our response should be, "Why
Not only in the United States but, for example, in my homeland of Australia,
we had, in the 1960s, one of the highest rates of sustained economic growth
in our history.
We had full employment, high public and private fixed-capital investment,
and low inflation. In the last few years of the decade, expenditure on such
things as education, health and welfare doubled - in real terms - and then
began to
double again.
In the United States, both welfare and civil rights were embraced as never
before. As part of the Cold-War struggle but going beyond it, the United
States realised the goal set by Kennedy of putting a man on the Moon by the
end of the decade. More aid was given to the developing countries than ever
before and, through such arrangements as UNCTAD, the prospect was for
ever-increasing advancement of the world's poorer people.
All of this was at a time when the Cold War and the Vietnam War as a
particular manifestation of it, were absorbing so much of United States
Despite all this, when Richard Nixon became President in January 1969,
inflation was modest - certainly manageable by the standards that were to
come in the next fifteen years or so.
In retrospect, it probably would have been better if the Nixon
had simply let things be.
As it is, we might recall the Shakespearean warning, "In trying to
better, oft we mar what's good."
By the summer of 1969, Nixon had already applied or was in process of
applying fiscal restraints and in July of that year, the Chairman of the Fed
announced a hike in interest rates.
At that point, stagflation, though not yet christened, was born.
In my book, The Multiple Abyss, I wrote -

"In July 1969, six months into the first Nixon Administration and just
twelve days before man took his first steps on the Moon, the Federal Reserve
Board raised interest rates. In the midst of all the drama of the times, the
raising of interest rates seemed a dull, stodgy, inconsequential event. So,
not surprisingly, it was received with calm and, initially at least,
understanding. The United States had spent enormous amounts of money on the
Cold War, on the Vietnam War, on aid to less developed countries and, above
all, on President Johnson's welfare society. The resources of even the
mighty United States economy were stretched and prices were rising. So the
Fed acted "to slow the economy down." Its action was, in the conventional
wisdom of the time, "correct." But what happened then?
"One account [in The Indigent Rich, pp.41-2] said that -
"...towards the end of 1969, that is, less than six months after the Fed had
acted, policies instituted by the Nixon Administration began to push
unemployment up. The intention of these policies was to stop inflation by
reducing demand. Demand was to be reduced by reducing personal income, which
was assumed to be a function of increasing unemployment. But President Nixon
had already arranged in his message to Congress that 'if unemployment were
to rise' the programme of unemployment insurance 'automatically would act to
sustain personal income.' He had therefore undermined in advance his
capacity to attack inflation through increasing unemployment and reducing
personal incomes.
"But he was more shackled in his capacity to attack inflation by these means
than even this contradiction in his policies demonstrates. For his policies,
if they did not reduce incomes as much as the increase in unemployment would
have done in an earlier period, they did reduce production. The number of
unemployed shot up by more than one million in less than a year. The rate of
increase in the gross national product dropped sharply. The President's
Council of Economic Advisers estimated that the United States economy, in
the second quarter of 1970, was operating at about 4 per cent below its
potential capacity and that the real rate of growth of GNP in the third
quarter was down to 1.4 per cent - or to 2.5 per cent, if the effect of the
General Motors strike were excluded. Growth in the fourth quarter was
probably nil. The difference between these estimates and the real rate of
growth of 5 per cent or more before the advent of recessive policies was
substantial; and was borne out by data showing movements in industrial
production. From a peak in July 1969, the index of industrial production
dropped steadily to a point 7 per cent lower in October 1970. The decline
was sharper as unemployment grew (and as the General Motors strike caused
further production losses). The index which stood at 173.1 in October 1969,
had fallen to 166.1 in September 1970, and 162.3 in October 1970".

Here was the essential cause of stagflation, identified even before its
in The Indigent Rich as early as 1971. By 1974, the term itself had been
coined and in
"Inflation: A Study in Stability", published in that year, I wrote -

"If it is socially unacceptable to move demand down far enough to balance
supply, then the only way of achieving balance in an inflationary situation
is to move supply up or, at least, keep it up to meet demand. Our failure to
try to do this explains why we have so often had 'stagflation'. When
insufficiency of supply started to cause inflation, we have applied - and,
indeed, we still do apply - monetary and fiscal policies that curtail
certain areas of demand, including investment demand, and that curtail
production. This reduction of supply while demand necessarily stays up under
the pressure of government as well as of private outlays, achieved those
twin evils of more unemployment and higher prices.
"When we have reached that point of ultimate frustration, we have then -
just as we did in the 1930s - flailed around desperately for remedies
roughly within the confines of our existing economic orthodoxies. Wage
levels are said to be too high (that was a favourite in the 1930s too);
therefore wages should be frozen or cut. Others say we need an incomes
policy and price control. Or we should revalue the currency or cut tariffs.
Most governments have tried some of these; some have tried them all. None
really works....."

Thirty years later, we still haven't moved far beyond where we were in 1974.
We now depend almost entirely on hiking or cutting interest rates to solve
our problems of inflation - and just about everything else, domestic and
We have learned to live with high rates of unemployment, low rates of real
inadequate economic and social welfare, education and health, widespread
inequality, homelessness and all the rest.
I have noted above that the policies that thrust us into the stagflationary
1970s were applied just days before Man took his first steps on the Moon.
The Moon program was curtailed in the early 1970s and we've never embarked
on any manned space program to any heavenly bodies since. The first
President Bush talked about it but nothing was even begun. The current
President Bush talks of going back to the Moon - thirty years on - and
perhaps from there to Mars; but we know that neither he nor his successors
will ever do it.
They will never do it unless economic policies are fundamentally changed and
we turn from the wrong road that Nixon took in July 1969 and follow another,
more positive, more dynamic, more enlightened road whose elements have been
adumbrated above.
I might just say a final word on unemployment. It is a misery for the
individual and a curse for the economy and the society. It is, above all
things, avoidable
and its definition political. More than thirty years ago, in The Indigent
Rich, I wrote -

"Full employment, especially of labour, achieves a political definition, as
distinct from a technical definition, over time. At the end of the Second
World War, it was widely considered that a level of 4 per cent of
unemployment would constitute a reasonable definition of full employment of
labour. Against a background of unemployment during the thirties rising to
20 per cent and even 30 per cent and remaining, for long periods, at or
above 10 per cent, it was understandable that 4 per cent should look pretty
good. But, as time passed, unemployment began to settle, for long periods
and in an increasing number of countries, below 4 per cent and to move
towards an almost irreducible level of 1 to 2 per cent. Once people become
accustomed to an unemployment level of 1 per cent, then a movement back to a
rate of 2 per cent causes what is regarded as widespread distress and 3 per
cent or 4 per cent comes to be regarded, in many countries, as a national

What is certain, whether thirty years ago or now, is that unemployment
causes, to put it at its lowest, a dreadful waste of valuable human
resources. In recent years, in the developed world, we have become used to
unemployment rates of
over 5% and often over 10%. In many of the poorer countries, the chronic
rate is 20,
30, 50% or even more. Underemployment is as much a curse as unemployment.
rates, even for the fully employed, often do not constitute an adequate
living income.
Unemployment and underemployment of those who want to work reduce the
potential of the society in which they occur, limit human aspirations and
frustrate the "impossible" dreams of both individuals and societies.
Starting with the Nixon policies of 1969 - which were adopted by other
governments and were approved and continue to be approved by mainstreamer
economists right up to the present day - we moved away from full employment.
We became so entangled in policies that strangled employment that few now
to believe that we can ever return to the employment situation that
we knew in the 1960s.
That is a attitude of inexcusable despair. There is no good reason that we
should not return
to policies of full employment. Such a return would not only enable us to
solve - positively - our problems of inflation, stagflation or whatever, but
also put us once more on the path to achieve a multitude of our
aspirations including, if we so choose - and not at the expense of
neglecting our
needs here on earth - a voyage to the planets and even onwards - if we
believe it
not to be "impossible" - to the stars.

James Cumes

----- Original Message -----
From: "Gary Santos"
To: "James Cumes"
Sent: Saturday, January 17, 2004 5:09 AM
Subject: Interest Rise Causes Stagflation

> James,
> Could I trouble you for an explanation? I would think it would depend on
> specific circumstances, would it not?

Thursday, January 15, 2004

The US Dollar, Inflation and the Outlook for 2004 

Dear Sam and Gunnar,

This is great to see a sharp debate between two masters.

I loved this bit -

> > You are right on this one - in my 1976 copy of Samuelson' Economics, he
> > wrote that the "stagflation" problem remained to be explained.
> >
> > If some young economic scholar could figure it out, he added, he or she
> > would be on track for a Nobel Prize in Economic Science.

Even at that date - 1976 - I had been "on track" to gather in a Nobel award
for five years or more. Since 1976, another 28 years have passed.
Do you think I have run the full "track" by now and that shortly I should be
packing my bags to collect my prize in Stockholm?
I hope, Sam, that you and Gunnar both will accompany me and share in the
All the best.


----- Original Message -----
From: "Gunnar Tómasson"
To: "Sam Vaknin" ;
Cc: ; ; ;
; "William Engdahl"
Sent: Thursday, January 15, 2004 5:58 PM
Subject: Re: [gang8] Re: The US Dollar, Inflation and the Outlook for 2004

> Samuelson has 20/20 retrospective vision!
> Foresight is another matter - here is his Reagan-Bush Jr. fiscal policy
> prescription.
> First, Samuelson cited "the historian Lord Macaulay" as follows:
> "At every stage in the growth of [public] debt the nation has set up the
> same cry of anguish and despair. At every stage in the growth of that
> it has been seriously asserted by wise men that bankruptcy and ruin were
> hand. Yet still the debt went on growing; and still bankruptcy and ruin
> were as remote as ever...
> "The prophets of evil were under a double delusion. They erroneously
> imagined that there was an exact analogy between the case of an individual
> who is in debt to another individual and the case of a society which is in
> debt to a part of itself.... They make no allowance for the effect
> by the incessant progress of every experimental science, and by the
> incessant efforts of every man to get on in life. They saw that the debt
> grew, and they forgot that other things grew as well..."
> Then, Samuelson surveyed recent U.S. experience in this respect:
> "Figure 19-3 dramatically exemplifies that the growth of our economy and
> price inflation since 1945 have drastically _reduced_ the ratio of United
> States public debt to gross national product. (This chart, properly,
> excludes FRB and Treasury holdings; but the point would be the same if
> exclusions had not been made.) This fact of growth explains why, in the
> United States, where money GNP doubles in about a decade, the public debt
> might increase by another two-thirds of a trillion dollars in that time
> without its relative percentage burden growing at all.
> "This would give the wildest believer in government spending an average
> deficit of tens and tens of billions of dollars per year before he would
> have to turn to such even more unorthodox financial expedients as printing
> money or selling interest-free bonds to the Federal Reserve Banks."
> Finally, Samuelson presented his conclusions:
> "Could a nation fanatically addicted to deficit spending pursue such a
> policy for the rest of our lives and beyond? Study of the mechanics of
> banking and income determination suggests that the barrier to this would
> be financial. The barrier would have to be political and self-imposed;
> the effects of such a policy would depend crucially upon whether it
> on an economy that is already inflationary or deflationary."
> Two final points.
> First. Dick Cheney was wrong when he told O'Neill not to worry about Bush
> Jr's fiscal policy because "Reagan proved that deficits don't matter" -
> honor belongs to Samuelson!
> Second. I wonder how Samuelson got the stagflation problem right WITHOUT
> going back to basics and rethinking (thinking?) through orthodox Monetary
> Economics as reflected, inter alia, in The Washington Consensus?
> Kind regards,
> Gunnar
> ----- Original Message -----
> From: "Sam Vaknin"
> To: "Gunnar Tómasson" ;

> Cc: ; ; ;
> ; "William Engdahl"
> Sent: Thursday, January 15, 2004 10:40 AM
> Subject: Re: [gang8] Re: The US Dollar, Inflation and the Outlook for 2004
> > This is why it is always recommended to own the latest edition
> >
> > 1976 is almost 30 years ago! A millennium in terms of economic theory.
> > Stagflation was a new phenomenon in 1976.
> >
> > (See my earlier response to James with reference to the pages in the
> > Seventeenth edition of Samuelson's which deal with stagflation).
> >
> > Take care.
> >
> > Sam
> >
> >
> > ----- Original Message -----
> > From: Gunnar Tómasson
> > To: gang8@yahoogroups.com ; Sam Vaknin
> > Cc: vow@topica.com ; gang8@yahoogroups.com ; pkt@csf.colorado.edu ;
> > jozefimrich@authorsden.com ; William Engdahl
> > Sent: Thursday, January 15, 2004 4:07 PM
> > Subject: Re: [gang8] Re: The US Dollar, Inflation and the Outlook for
> >
> >
> > Re. the following:
> >
> > The other qualification concerns your suggestion that my analysis of the
> > cause of the inflation after 1969 is "the classic explanation for the
> > stagflation of the 1970s [and] appears in all textbooks (Samuelson's for
> > instance)." Samuelson would be surprised to note that...
> >
> > James,
> >
> > You are right on this one - in my 1976 copy of Samuelson' Economics, he
> > wrote that the "stagflation" problem remained to be explained.
> >
> > If some young economic scholar could figure it out, he added, he or she
> > would be on track for a Nobel Prize in Economic Science.
> >
> > Gunnar
> >
> >
> > ----- Original Message -----
> > From: James Cumes
> > To: Sam Vaknin
> > Cc: vow@topica.com ; gang8@yahoogroups.com ; pkt@csf.colorado.edu ;
> > jozefimrich@authorsden.com ; William Engdahl
> > Sent: Thursday, January 15, 2004 4:14 AM
> > Subject: [gang8] Re: The US Dollar, Inflation and the Outlook for 2004
> >
> >
> > Sam,
> >
> > Your responses are always acute and refreshing.
> > (I like them too because you so often agree with me - and indulge my
> > egocentricity!!)
> > However, just a couple of qualifications.
> > I am not anti-American.
> > I am strongly anti the Bush Administration. I think this administration
> has
> > done the United States a great deal of harm and has split many people
> > overseas asunder from a country, a civilisation, a "culture" if you like
> to
> > which they have been deeply attached for decades and even generations.
> > I fought alongside the Americans after Pearl Harbour. Their performance
> then
> > and for many years afterwards deserved and continues to merit
> I
> > like to think that the Bush episode is a bleak and, in some ways, even
> > terrifying regression from which they will soon recover
> > The other qualification concerns your suggestion that my analysis of the
> > cause of the inflation after 1969 is "the classic explanation for the
> > stagflation of the 1970s [and] appears in all textbooks (Samuelson's for
> > instance)." Samuelson would be surprised to note that and so would
> Greenspan
> > who too embraces quite a different theory and, in particular, the idea
> that
> > a hike in interest rates is the way to deal with actual or potential
> > inflation. The mainstreamers around the world, including the central
> > bankers, have been for decades and still are afflicted with this notion.
> > A man called Gibson - the "Gibson paradox" - thought otherwise way back
> > the 1920s and Keynes had a brief flash of understanding in the thirties
> but,
> > for the rest, it was left to me to tell the world, in 1970-71, that
> > get stagflation if you hiked interest rates. (The sad thing was that not
> > much of the world listened.) There are now a few, in Gang 8 and ICE, who
> > think as I do but we're a pretty select - though we try not to be
> > exclusive - bunch.
> > Thanks again, Sam, for your comments which are always appreciated.
> >
> >
> >
> >
> > James Cumes
> > http://www.authorsden.com/visit/author.asp?AuthorID=3473
> > http://members.chello.at/jamescumes/default.htm
> > http://www.kokodatrail.com.au/forums/?showtopic=54
> > http://members.chello.at/jamescumes/VOW/default.htm
> >
> > ----- Original Message -----
> > From: "Sam Vaknin"
> > To: "James Cumes"
> > Cc: ; ; ;
> > ; "William Engdahl"
> > Sent: Wednesday, January 14, 2004 2:06 PM
> > Subject: Re: The US Dollar, Inflation and the Outlook for 2004
> >
> >
> > > Dear James,
> > >
> > > Thank you for your kind words.
> > >
> > > You wrote:
> > >
> > > "My analysis differs from yours - and from that of everyone else of
> I
> > > am
> > > aware - in that I relate the deficit, directly, to the inflationary
> > > pressures that arose in the late sixties and early seventies and to
> > > unwise policies that, then and after, were used in the attempt to curb
> > > inflation.
> > > Those unwise policies simply intensified inflation - giving us
> initially,
> > > you will recall, stagflation."
> > >
> > > Sam:
> > >
> > > Actually, the connection between the twin deficits, inflation, and
> > retarded
> > > economic growth as the classic explanation for the stagflation of the
> > 1970s,
> > > appears in all textbooks (Samuelson's for instance).
> > >
> > > What I find new and intriguing in your article is the novel linkage
> > > propose between capital investment and inflation:
> > >
> > > "Some countries avoided stagflation through policies of intense, real,
> > > fixed-capital investment. The outstanding economies in this respect
> were,
> > in
> > > the 1970s, (West) Germany and Japan."
> > >
> > > That - to the best of my knowledge - is a new and enlightening twist
> > > economic orthodoxy!
> > >
> > > James:
> > >
> > > "they thought that the "recovery" after 2001 was a real recovery.
> > > It wasn't and isn't, of course, and the pressures built up constantly
> > during
> > > those boom and bust years, plus the "recovery" years, to leave us in
> > > position we have today in which the Mother of all Boilers could now
> burst,
> > > unless we're lucky, with an explosive intensity and a global reach
> > > we've never imagined before."
> > >
> > > Sam:
> > >
> > > Couldn't agree more.
> > >
> > > James:
> > >
> > > So we must not make the mistake of ascribing the American "free lunch"
> to
> > > characteristic American villainy or, for example, to imperialist
> designs.
> > >
> > > Sam:
> > >
> > > This paradise of fools inhabited by both the USA and exporting
> > > reminds me of another "coevolution" ---
> > >
> > > Reminds me of the collusion between greedy American investors and
> > avaricious
> > > rapacious American managers.
> > >
> > > When the bubble burst the former feigned innocence and blamed it on
> > > villainy and imperialist designs of the latter ...
> > >
> > > I happen to be a rabid anti-American and am following its inevitable
> > decline
> > > with ever-rising hopes and delight - but I think your brilliant
> > > hits quite a few nails on their proverbial heads.
> > >
> > > Take care.
> > >
> > > Sam

Wednesday, January 14, 2004

A "Free Lunch" or a Poisoned Chalice 


Your article entitled - O'Neill's Free Dinner; America's Current Account Deficit -provides a splendid coverage of the issues.
My analysis differs from yours - and from that of everyone else of whom I am aware - in that I relate the deficit, directly, to the inflationary pressures that arose in the late sixties and early seventies and to the unwise policies that, then and after, were used in the attempt to curb inflation.
Those unwise policies simply intensified inflation - giving us initially, you will recall, stagflation.
The excess demand in the US caused an inflow of imports from Britain and other countries which then applied the same "remedies" as the United States. They got stagflation too.
Some countries avoided stagflation through policies of intense, real, fixed-capital investment. The outstanding economies in this respect were, in the 1970s, (West) Germany and Japan.
However, more was needed to bring inflation/stagflation under control.
Gradually, other countries, especially in Asia, realised that they could exploit the market in the United States - and the markets of other countries afflicted in the same way.
So a period of extraordinary boom developed in those countries that we came to call the Tigers - Hong Kong, Taiwan, Singapore, South Korea. Others joined them later, in particular China.
Especially from the early 1980s onwards, these countries provided the cheap supplies which were necessary to bring consumer supply up to the level of consumer and especially consumer-credit-inflated demand in the United States.
Those supplies did the same for other countries, afflicted in the same way as the United States with their unwise policies, especially to fight inflation.
One of those countries was and is my own homeland of Australia.
The market that the United States provided meant that the Asian Tigers enjoyed a miraculous rate of development that they could never have hoped for otherwise. Living levels in Hong Kong, for example, rose to match those in what was then its colonial master, Britain, and, for a time at least, even surpassed British and European levels.
Consequently, these countries were more than willing to accumulate large surplus trade balances just to keep the merry-go-round turning merrily.
They may have seemed to be giving a free lunch to the United States but they were of course themselves lunching on the foolishness of United States policies with a luxuriousness that they had never dreamt of before.
At the same time, they were encouraging/conspiring with/collaborating in American unwisdom.
The Americans thought they were winning their fight against inflation. They thought that their misguided, largely monetarist policies and their half-baked, supply-side, tax-cut policies were working. They thought the American economy would be even stronger because of these policies - and the collapse of the Soviet Union seemed to settle beyond all question that the "free" market, "free" trade, let-it-all-hang-out policy was the way to go.
They even thought that the boom of the 1990s was a real boom - and, especially in some of its technological aspects, it was - and they thought that the "recovery" after 2001 was a real recovery.
It wasn't and isn't, of course, and the pressures built up constantly during those boom and bust years, plus the "recovery" years, to leave us in the position we have today in which the Mother of all Boilers could now burst, unless we're lucky, with an explosive intensity and a global reach that we've never imagined before.
Just to wrap that up a little more, the Americans did get a free lunch in one sense but, more realistically if you like, they drank, at that lunch, from a poisoned chalice. The poison meant that they ran down their real economy, they gutted much of their manufacturing/consumer-goods industry - and now their tertiary industry is getting the same treatment - they built up other economies, including the potentially mighty China which, if present trends continue and especially if they are intensified, will replace the United States as the undisputed superpower or hyperpower later this century, and they built up economic and financial imbalances that had to be painfully corrected at some time in a future which is probably now upon us.
I must add that, although the United States "free lunch" and poisoned chalice are under more scrutiny, other countries ate the same turkey and drank the same plonk.
In other words, you don't need to be a superpower to wine and dine at the wrong restaurant.
Australia applied broadly the same policies as the United States after 1969 and has had much the same chronic trade deficits. Having gutted her manufacturing industries, she is now in process of gutting many of her high-tech tertiary enterprises. As well as selling much of the "Family Silver", she has let her public investment run down and her public infrastructure deteriorate. In large part, her private investment has been directed abroad and has been in financial ventures that yield relatively little fixed-capital productive capacity, with the accompanying beneficial lifts in productivity that would accompany that solid, traditional investment.
So we must not make the mistake of ascribing the American "free lunch" to characteristic American villainy or, for example, to imperialist designs. In the case of both the United States and Australia, their situation has arisen from unwise policies that they have never properly understood and whose consequences they still do not grasp today.
Until the United States Government and their policymaking individuals and institutions understand the above and adjust their policies accordingly, they will continue to lead their country along a road to increasing economic, social, and, especially in the post-9/11 climate, strategic vulnerability.
That vulnerability must have global implications.
It cannot be otherwise.
It is vital that the United States act vigorously and promptly to restore promise to its own destiny and that, in our own interests, we do whatever we can to help.

James Cumes

----- Original Message -----
From: "Sam Vaknin"
To: "James Cumes" ; "Antony Loewenstein" ; "Basil Bolt" ; "DFLYNN" ; "Jane Braaten"
Sent: Tuesday, January 13, 2004 1:54 PM
Subject: Re: The US Dollar, Inflation and the Outlook for 2004

> Great analysis!
> You may wish to read this (written two years ago):
> http://samvak.tripod.com/currentaccount.html
> Take care.
> Sam

This page is powered by Blogger. Isn't yours?