IT'S FINANCE !!!
I have that phrase scrawled all over my note pads. I scribble it every time I read another book on economics. I'm not anti-capitalist. I'm actually OK with industrial capitalism as long as its worst abuses are ameliorated.
This can be accomplished with Union membership and a strong Labor movement as is currently the case in Germany. You'll note that that country's problem right now is not with its industrial sector but with its FIRE sector, i.e Deutsche Bank. Anyway, after the 2008 FIRE sector crash I began trying to educate myself about what Wall Street does and how it operates. (Didn't we all?) I read Nouriel Roubini, Yves Smith, Kevin Phillips and my current favorite economist Michael Hudson.
Hudson's most recent book, Killing the Host, may be the best of them all. Here's a quote, from Chapter 10:
Although corporate profits have soared in recent years, they are not leading to new tangible investment, output or employment. The explanation for this disconnect is financialization. Some 40 percent of profits are now registered by the banking and financial sector, not industry. In the manufacturing sector, managers increase reported profits by cutting back basic spending, letting their physical investment run down, and replacing long-term skilled employees with less highly paid new recruits, while using the remaining corporate profits increasingly for share buybacks and higher dividend payouts.
These practices have decoupled financial management from investment in new means of production. The idea that economies can get rich mainly from the debit side of the national balance sheet reflects the degree to which creditor interests have taken over the economy’s brain. Finance capitalism is based on exponentially growing debts owed to creditors. Industrial capitalism is based on expanding tangible capital investment, employment and markets. When personal and business income is diverted from production and consumption to pay debt service and/or bid up asset prices, the “real” economy cannot expand. And when the debt bubble overhead grows to a point where the economy cannot pay any more, the financial sector demands payment for the debts run up, imposing austerity.
So, with the above as introduction, here's a good video from Mad Max Keiser that came up in my YouTube feed this morning. The Atlantic article that Stacy quotes is here: Finance is Ruining America. Enjoy.
[video:https://www.youtube.com/watch?v=zFUExATj8rI width:500 height:300]
Comments
Nice diary - thanks. I don't think your sources get to the heart
of the matter which is that monopoly capital's natural state is slow growth, stagnation. Corporations have turned to financialization; it has not been imposed on them. There is a dearth of opportunities for profitable investment in manufactured goods so financial speculation absorbs the surplus capital.
Deutsche Bank was probably hit by predatory finance manipulating the bank. Hedge funds withdrew much of their deposits while shorting the stock. The stock went down, hedge funds cleaned up. The world's financial system was(still is) put at risk all for a few hedge fund managers & their investors making profits. Nothing was produced; nothing is being invested for society's benefit - it's manipulation, of the type that hit Lehman, or so I've been led to conclude.
Stock buybacks is stock manipulation plain and simple and that's why it was illegal until the neoliberals assumed power over the political economy a few decades ago. Stocks should pay a dividend because of the inherent risk but to artificially inflate the value of a company's stock gives lie to the concept of a "free market" - a term without real meaning.
Banks engaging in speculation is a prime reason why banks should be nationalized. It would help end the boom and bust cycle where the ordinary citizen suffers and never quite recovers to the pre-recession level.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
Financial Capitalism vs Industrial Capitalism...
The main idea here is that industrial capitalism is based upon productivity, viable services, and goods.
Financial capitalism is based upon waste and fraud.
There is a nexus between the two as well. Marketshare as wellbeing -- better to maintain marketshare and the steady state of the current system than to make transformational change and throw the markets into flux.
I'd rather be Avis at #2 than change my market and try to take on or supersede Hertz, the #1. That kind of change leads to the Blockbuster Effect -- netflix and streaming completely shellacked Blockbuster video.
Better to buy up and stymie Netflix than to transform the market and risk the kinds of changes that remove you from the business entirely.
This might be a bunch of gibberish, but I think there's some truth in here... A few in the bag and writing in stream of consciousness.
It's better to profit from waste, fraud and abuse from a position of powerful marketshare than it is to transform the system and risk being shut out entirely by forces beyond your control.
This is why corporate, and corporate sponsored public policy are inherently conservative institutions that do not allow any deviation from accepted business practices.
It's part of David Graber's Of Flying Cars and the Declining Rate of Profit. The radical departure from status quo marketshare and business practices that transformational change allows is incompatible with control and the ability of a slow, clumsy, corporate institution to adapt.
Hopefully someone can grok some sense in my comment, here. Wish I were chatting with you guys over brewskis... cheers!
“Tactics without strategy is the noise before defeat.” ~ Sun Tzu
It's finance,
trust me. I'm convinced that the growth, the explosion, of the FIRE sector in the current deregulated, free-money environment is the heart of the matter. When I use the term "free-market", by the way, I mean the set of politico/economic principles promoted by the likes of Milton Friedman and put into practice by Pinochet, Reagan and Thatcher. These principles are almost universal these days, here and abroad, and still largely unchallenged in mainstream academia and media. Some are also calling it Neoclassical economics. I use Neoliberal now and I think this is the term that's in widest use these days.
We wanted decent healthcare, a living wage and free college.
The Democrats gave us Biden and war instead.
I think neoliberal is the current term though I don't care for
it. Neoclassical economics, which has more similarities than differences with post Keynesianism, is what has failed to adequately explain the political economy and has proved to be worthless is predicting the path the world's economy has taken and will continue to take unless something radical occurs.
The term free market, to me, is worthless as a descriptor and has value only as an example of a term used by the powerful that means the opposite of what a reasonable person would infer from it.
I come down on the side that Big Finance, another term that should be replaced with something better, is what is driving the world's political economy simply because the stagnation of late stage capitalism cannot absorb the excess profits it has wrong from the planet. The money goes into this non-productive activity, non-productive on a good day, down right harmful most of the time, and bubbles and their manipulation causes many forms of human suffering.
Even Larry Summers has used the term secular stagnation, although he's decades late in recognizing the state of affairs. To me, financialization is what occurs when productive investments can't sop up the excess profits and obscene compensation for corporate honchos is small potatoes to the amount of capital sloshing around.
I agree with you about mainstream academics. It's the kiss of death for their careers if they mention the school of economics that has correctly predicted the trajectory of the world's political economy. Stiglitz wrote an article last year in which he named those neoclassicists who have failed to account for the state of affairs but was unable to bring himself to utter even one name associated with the economic school that has had the situation diagnosed for a few decades.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
name, please?
Umm, would you please name the economic school that got it right? Your comment, otherwise excellent, left me a touch confused on this point.
Thank You!
"US govt/military = bad. Russian govt/military = bad. Any politician wanting power = bad. Anyone wielding power = bad." --Shahryar
"All power corrupts absolutely!" -- thanatokephaloides
High “marks” to whoever can guess the right answer . . . n/t
LOL - good one; Made me smile this morning!
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
The people I have read, and continue to read, are Foster, Baran,
Sweezy, Giroux, back through Kalecki, Veblen, and Karl Marx.
The scholars that publish, and have published, in The Monthly Review use Marxian analysis while updating Marx and use the latter's insights into ecology, anthropology, and the power relationships of the political economy. It is not fundamentalist Marxism.
No one can predict the date of a capitalist breakdown to the day but these scholars have consistently explained the contradictions of economic activity and point out how the system will fail.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
A Blogger, the Conceptual Guerrilla, Back in the Day, Had an
idea that "free markets" really meant "Cheap Labor".
I'd go a bit further. I think free markets = Cheap Labor and Corporate Supremacy. Corporate Supremacy, I think, gets to the center of the "opposite of what a reasonable person would infer from it".
Supra-national gets there as well, as does Corporate Freedom, my previous moniker for this idea before a few seconds ago.
Big Finance is completely able to absorb the new wealth, but it is not able to do so while preserving the current power disparity. Modern economics have nothing to do with money, and have everything to do with power.
We could completely absorb new wealth, spread it around, create new and spiffy products and services, but we can't do that while maintaining the power disparity that finance uses to control and dominate people and politics.
Financialization is graft, nothing more. It's playing and gaming the system to your advantage. If you spend billions to create your marketshare, you're not going to transform the market and enable a less powerful, more nimble and quick economic adversary sidestep you and rob you of your power to act with impunity, economically speaking.
You are dominant and should remain so. You can either make changes to the game, throwing your comfortable and supreme position into flux, or you can change the rules to leverage your strategic advantages. It's Calvinball.
“Tactics without strategy is the noise before defeat.” ~ Sun Tzu
Great post
I have read the post and you and duckpin both seem to have a good deal of knowledge on finance, and make good points. I have no formal education in finance or economics but did pretty good until 2008. my question is what do you think can or will happen as a result of this situation and what if anything can be done.
That's a helluva' question.
I don't know the answer and I doubt that duckpin does. Real economists, and smart ones too, don't know. I know this much, we're in uncharted territory, economically speaking. There's a huge debt problem, people, businesses, governments, all are deeply in debt. Consumer demand is flat, stock market valuations are based on financial engineering instead of sales. Sooner or later, something's got to give. The only question is, how ugly is it gonna' be ? Hope that helps, thanks for your interest.
We wanted decent healthcare, a living wage and free college.
The Democrats gave us Biden and war instead.
Just looking for an opinion
that isn't coming from MSM. Thanks for responding.
More here:
Salon
We wanted decent healthcare, a living wage and free college.
The Democrats gave us Biden and war instead.
Duckpin doesn't know. It does seem that only a radical
transformation of the political economy to one that places primary value on sustainabilty; protection of biodiversity; universal human rights, including right to food, clean water, shelter, education, and medical services; and a break with grow-or-die capitalism, which places primary good on profits and treats the earth as both a source of resources and a free dumping ground, is the only ordering of humanity which will save the planet and its inhabitants.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
Great post
deleted double post