A contribution by Kevin Carson:
“The shift of value-creation outside the cash nexus provoked an interesting blogospheric discussion between Tyler Cowen and John Quiggin. Cowen raised the possibility that much of the productivity growth in recent years has taken place “outside of the usual cash and revenue-generating nexus.”
Quiggin, in an article appropriately titled “The end of the cash nexus,” took the idea and ran with it:
There has been a huge shift in the location of innovation, with much of it either deriving from, or dependent on, public goods produced outside the market and government sectors, which may be referred to as social production…. If improvements in welfare are increasingly independent of the market, it would make sense to shift resources out of market production, for example by reducing working hours. The financial crisis seems certain to produce at least a temporary drop in average hours, but the experience of the Depression and the Japanese slowdown of the 1990s suggest that the effect may be permanent….
Of course the dominant, “orthodox” line of economic thought is reflected in this column by Daniel Gross:
The rush to hoard cash and pinch pennies is understandable, given that some $13 trillion in net worth evaporated between mid-2007 and the end of 2008. But while it makes complete microeconomic sense for families and individual businesses, the spending freeze and collective shunning of nonguaranteed investments is macroeconomically troubling. Especially if it persists once the credit crisis passes. For our $14 trillion economy to recover and thrive, hoarders must open their wallets and become consumers, and businesses must once again be willing to roll the dice. Nobody is advocating a return to the debt-fueled days of 4,000-square-foot second homes, $1,000 handbags and $6 specialty coffees. But in our economy, in which 70 percent of activity is derived from consumers, we do need our neighbors to spend. Otherwise we fall into what economist John Maynard Keynes called the “paradox of thrift.” If everyone saves during a slack period, economic activity will decrease, thus making everyone poorer. We also need to start investing again—not necessarily in the stock of Citigroup or in condos in Miami. But rather to build skills, to create the new companies that are so vital to growth, and to fund the discovery and development of new technologies…. Economists warn that if we don’t manage to jolt the economy back to life soon, we run the risk of repeating Japan’s “lost decade” of the 1990s. Would that be so bad? After all, while Japan endured a prolonged period of slow growth, nobody starved, there was no social unrest in the aging country, and its biggest companies continued to innovate. But America is different. Thanks to our continually rising population, we need significant growth just to maintain our standards of living—and the health of our democracy. “When people experience progress in their material living standards and they have some degree of optimism that it will continue, they’re inclined to support public policies that reflect tolerance, opening of opportunity and commitments to democracy,” says Benjamin Friedman, a Harvard economist and author of “The Moral Consequences of Growth.” A second moral imperative demands that America get back on the growth track. The U.S. remains the single largest source of demand. Until America emerges from its bunker, the global economy—facing its first year of contraction since World War II—is likely to remain moribund.
Gross’s comment exemplifies the perverse understanding of “standard of living” implicit in all our economic metrics. In this way of thinking, “the economy” and “jobs,” are things that exist as ends in themselves, and the GDP is something to be maximized for its own sake.
His way of looking at things was parodied quite effectively by The Onion: “Recession-Plagued Nation Demands New Bubble to Invest In.”
In fact, it’s really hard to tell The Onion’s “parody” from what passes for “serious” thought among mainstream economists. The whole focus of the Obama-Geithner economic policy, like that of Bush and Paulson, has been to push the “reset” button and restore something like the status quo ante: by buying “bad assets” at something close to face value rather than marking them down to their real current market value, to restore real estate and securities to some considerable portion of their pre-collapse value, and thereby get banks lending again, so we can restore debt-based purchasing power and get all that idle productive capacity going again.
Of course, most of that productive capacity only exists because we were producing stuff for the landfills (with a brief detour through our living rooms), in order to maintain “full employment” by keeping everyone working forty hours a week at “jobs”–most of the forty hours going to pay rentier incomes to Bill Gates and other holders of artificial property rights, or for wasting inputs (the moral equivalent of digging holes and filling them back up again). It would make a lot more sense to simply eliminate the portion of commodity price that consists of embedded rents on “intellectual property,” and eliminate the waste inputs that are unnecessary for a given unit of output, and then work fifteen hour weeks. But that’s impossible, so long as a privileged class is able to interpose itself between production and consumption and levy a toll in terms of unnecessary labor.
In any case, it’s clear from Daniel Gross’s remarks above (and the many, many mainstream pundits who agree with him) that he regards frugality as morally tantamount to going AWOL in a total war. It reminds me of an exchange between Samuel Taylor Coleridge and one of the political economists of his day. The economist casually remarked that some English village was of “no account,” because (satisfying most of its own needs outside the cash nexus) it contributed nothing to the national income. “What, sir?” Coleridge responded. “Five hundred Christian souls of no importance?”
In the view of Coleridge’s interlocutor (and of people like Gross), the worker and consumer work and consume not to meet their own needs as efficiently as possible, but to serve a superior being called “the economy.”
In the real world, the best “investments” are in household “capital” that reduces the future income stream a family needs to remain comfortable, and in production methods that reduce the total money and labor cost of inputs required to get a given output of use-value. But all these things reduce the size of GDP and the number of hours the average person must work at a “job” to live comfortably.
Ideally, after the Time of Troubles resulting from Peak Oil and the collapse of mass-consumption demand, we’ll have an economy in which the official GDP is a small fraction of today’s value and the average person is catastrophically underemployed by conventional standards. But we’ll be living so well, nobody but the economists and people like Daniel Gross will notice.”