[Crantag]

I appreciate, Rugoz, taking the time to present your thoughts and link some source material. I look forward to going through it a bit.

I am not convinced on this notion of seasonal variations being a cause of data variations. This is surely pertinent where it concerns certain industries, but on the whole I would expect the impact to be somewhat trivial.

It is of course inherently problematic to rely on this sort of data (although regarding the United States federal authorities' tasks of analyzing the entire US economy, their achievements are beyond admirable). I tend to think that the data themselves are pretty good, and I think that the scholarship of the authors of the Monthly Review piece is certainly up to par. On that note, given their aim of compiling gross data, I do not tend to think that seasonal variations are enough to severely influence the overall picture.

It is good to be diligent and to scrutinize this sort of data. But I am not convinced that seasonal trends are sufficient grounds for concern here.

[wat0n]

Seasonal variation of CU was just one example of why average utilization might be below 100% (notice that if you for example have 2 firms, one producing only in winter and one only in summer, your economy-wide utilization is 50% throughout the year). The point is, most firms probably have "excess capacity" (note the quotation marks) for extended periods of time, because optimal production is irregular or unpredictable. However, that's perfectly compatible with profit maximization.

Absolutely, I was just pointing out that there is definitely some seasonal variation there. I am approaching this debate from a purely statistical point of view as your economic analysis is spot on and I have nothing else to add. You have come a long way from the "econ is just crap" stage you went through (which is not necessarily a bad thing as long as you have some well-thought criticism, sometimes non-economic arguments like statistical ones can be the most effective as they do not necessarily depend on assuming a model of behavior is true).

I appreciate, Rugoz, taking the time to present your thoughts and link some source material. I look forward to going through it a bit.

I am not convinced on this notion of seasonal variations being a cause of data variations. This is surely pertinent where it concerns certain industries, but on the whole I would expect the impact to be somewhat trivial.

It is of course inherently problematic to rely on this sort of data (although regarding the United States federal authorities' tasks of analyzing the entire US economy, their achievements are beyond admirable). I tend to think that the data themselves are pretty good, and I think that the scholarship of the authors of the Monthly Review piece is certainly up to par. On that note, given their aim of compiling gross data, I do not tend to think that seasonal variations are enough to severely influence the overall picture.

It is good to be diligent and to scrutinize this sort of data. But I am not convinced that seasonal trends are sufficient grounds for concern here.

It is, mainly because CU is bounded - it cannot be below 0% or above 100% by definition, so the presence of seasonal variation means some capital will not be used all the time but only in some particular circumstances such as the season/specific months of the year as keeping it idle may be cheaper than scraping it and then buying new machines to service the demand of those months. That means then that annual CU should be below 100%.

[Nunt]

The theory you present (overaccumulation of capital) is contradictory to the data you present (larger share of income goes to capital).

If there truly was too much capital, then a lot of capital would remain idle or underutilised reducing the share of income that is going to capital. In contrast, an increasing share of income going to capital would indicate that there is too little capital and too much labor. This also seems to fit the facts as two economies with massive labor pools have been increasingly participating in the global economy (China and India amoung others).

The good news is that this problem is fixing itself. More money for capital means more investments in capital. Gradually making capital more abundant and labor more relatively scarce. According to supply and demand, the income share of labor should then go up again.

The bad news is that this process may take too long (decades or longer).

[Truth To Power]

The theory you present (overaccumulation of capital) is contradictory to the data you present (larger share of income goes to capital).

The contradiction comes down to the incorrect definition of "capital." The larger share of income is going to land and IP rents and debt (especially mortgage) interest on bank-issued debt money, not profits on productive investment in buildings and capital equipment.

If there truly was too much capital, then a lot of capital would remain idle or underutilised reducing the share of income that is going to capital. In contrast, an increasing share of income going to capital would indicate that there is too little capital and too much labor.

No, two-factor analysis of this sort will always be wrong, as land is not capital. And in the modern context, we also need to add the exactions of IP owners and banksters to the landowners' appropriation of land rent, for a minimum of five factors.

More money for capital means more investments in capital. Gradually making capital more abundant and labor more relatively scarce. According to supply and demand, the income share of labor should then go up again.

The bad news is that this process may take too long (decades or longer).

No, the really bad news is that this process doesn't happen at all, as the Law of Rent dictates that all production increments resulting from increased capital investment and technological progress tend to be taken by landowners in rent, not paid to labor in wages. That is why two-factor analysis is always wildly wrong -- and why massive increases in capital investment and productivity over the last 40 years have produced massive increases in real land value, but not in real wages.

[Crantag]

The theory you present (overaccumulation of capital) is contradictory to the data you present (larger share of income goes to capital).

If there truly was too much capital, then a lot of capital would remain idle or underutilised reducing the share of income that is going to capital. In contrast, an increasing share of income going to capital would indicate that there is too little capital and too much labor. This also seems to fit the facts as two economies with massive labor pools have been increasingly participating in the global economy (China and India amoung others).

The good news is that this problem is fixing itself. More money for capital means more investments in capital. Gradually making capital more abundant and labor more relatively scarce. According to supply and demand, the income share of labor should then go up again.

The bad news is that this process may take too long (decades or longer).

You seem to have misunderstood the data. There is nothing there about an increasing share of income going to capital. There is one graph on the increasing share of national income going to FIRE (finance, insurance, real estate). This has to do with financialization. The argument of the article which is attached to the data argues that this is a consequence of industrial design. In particular, the argument here derives from the analysis laid out in Monopoly Capital. It is rather futile to attempt to summarize a 350 page book in a forum post, but basically the argument is that the oligopolistic control over industry (and the authors go to sufficient length to demonstrate how it is that oligopolistic firms indeed, as a rule, do not really compete) and the limited opportunity to invest in capital leads to a problem of excessive surplus. Since this can't be readily absorbed in new capital, it is absorbed in other ways. As I mentioned, the 'sales effort', civilian government, and military and imperialism are the main ways argued in their book. The Monthly Review current has strongly speculated that the advent of financialization is also owing to the same tendency of excessive surplus.

I am glad if this has been thought provoking, but I would encourage people to look at the article which the data is from for the proper context.

[Rugoz]

I am not convinced on this notion of seasonal variations being a cause of data variations. This is surely pertinent where it concerns certain industries, but on the whole I would expect the impact to be somewhat trivial.

Well its not what I said, or meant to say. I guess its filtered out anyway in the Fed's index (which as mentioned, has not cardinal interpretation, they basically estimate utilization on the basis of survey data in order to satisfy a certain theoretical concept of utilization).

In any case, I can makes a guess of what you actually mean. Apart from seasonal variations or other variations in consumer demand which would lower average utilization below 100%, planned economies could in theory have full utilization, because there is no uncertainty about future product demand and supply of inputs.

But that is theory of course. Problems with that kind of criticism of free markets:

1) It overestimates the importance of static efficiency (Who gives a damn whether utilization is 80% or 90%? In the long run its other things that matter).
2) I could name you another 1000 reasons why free markets are inefficient. The benevolent dictator is always better, by definition. Unfortunately he does not exist.

You have come a long way from the "econ is just crap" stage you went through (which is not necessarily a bad thing as long as you have some well-thought criticism, sometimes non-economic arguments like statistical ones can be the most effective as they do not necessarily depend on assuming a model of behavior is true).

Well, I never said 'econ is crap', and I don't think I have fundamentally changed my opinion. But this would take too long to discuss. Lets say I just decide on a case by case basis .

The good news is that this problem is fixing itself. More money for capital means more investments in capital. Gradually making capital more abundant and labor more relatively scarce. According to supply and demand, the income share of labor should then go up again.

More capital relative to income (we are experiencing an increase of that ratio right now) increases the income share of capital given a constant return to capital. Of course, that return should in theory go down as a result. However, whether the income share goes up or down depends on the elasticity of substitution between labor and capital in production. If the 2 are perfect substitutes, return to capital will not shrink when the capital/income ratio grows . If the 2 are perfect complements, return to capital would go to zero. I think empirically its not clear where in between those 2 extremes we are exactly.

[Crantag]

Rugoz, I appreciate your commentary throughout this thread. And I enjoy the insights presented in your last post, which I think are highly relevant and thoughtful.

I do not agree with this bit though.

2) I could name you another 1000 reasons why free markets are inefficient. The benevolent dictator is always better, by definition. Unfortunately he does not exist.

You are sort of doing a job of pigeon holing here, in that you are ascribing to those who question the efficacy of the prevailing economic system of the US (the basis for the present discussion) as holding a particular ideology. Specifically, you seem to ascribe the ideological attachments of the Cold War-era political ideologies related to communism.

I think you are a relatively young guy, as am I. I can tell you that the Berlin Wall was torn down well before I graduated from elementary school.

I find little relevance in Cold War politics in terms of my own formative experience, that is aside from the lasting effects of McCarthyism where it concerns the scholarly literature which has been presented to me for serious study within the halls of academic institutions. I have been hampered in my development because of this.

To be sure though, my approach to scholarship has tended to be 'you take what you need, and you leave the rest'. I love reading Adam Smith, for example. I also enjoy reading Karl Polayni's critiques of Adam Smith.

My philosophy is basically that diversity of approach and pluralism in general is the correct design, where it concerns the modes of intellectual discourse.

[Eran]

Not only does a benevolent dictator not exist, he couldn't exist as a matter of both logic and human nature.

Dictators don't tend to remain benevolent. In particular, to survive in power, they tend to reward those closest to them (the "winning coalition") at the expense of the rest of society.

More importantly (and applicable to all forms of central planning), no central planner, benevolent or not, possesses the knowledge required to outperform the free market.

The free market is an incredible mechanism whereby inefficiencies automatically attract anybody who is alert enough to detect them to find ways to mitigate them. The market process is one in which inefficiencies continue to be discovered and reduced.

No other mechanism can do that.

[Crantag]

Despite what people like to say, China is still communist. It is a centrally planned economy. It's poised to be the largest economy.

China has utilized free market mechanisms to effect growth to great effect. China may indeed have been the biggest winner of globalization, when all is said and done.

Market economies are bounded by finite limits, not because of the physical limits per se, but because of the necessity of perpetual growth.

Between 2007 and 2009, China lost 30 million jobs in the export sector. Over the period, Chinese net employment loss was 3 million. Some of this was due to many workers returning to the countryside, but the effect was still massive. This was due to the efficacy of the stimulus measures, most especially the massive infrastructure projects which have entirely transformed the urban space and the infrastructural networks. These projects were already well underway, but they were hugely boosted as a result of the stimulus policy.

This is written about in David Harvey's 2010 book Rebel Cities, by the way.

[Crantag]

More importantly (and applicable to all forms of central planning), no central planner, benevolent or not, possesses the knowledge required to outperform the free market.

Markets are tremendous tools. China has demonstrated this greatly in recent years, and it's been demonstrated repeatedly throughout history. Few sensible people argue against this, and this is indeed a built in component of the stagnation thesis.

Where Marxists differ from market fundamentalists is that Marxists recognize the limitations of market-centric economy.

[Eran]

Libertarians too recognise the limitations and problems of "market-centric" economy. An economy should be "market-centric". It should be market-exclusive.

All the problems we both recognise with market-centric economies can be traced to the ill-effects of residual government intervention and interference in markets.

When allowed to operate freely, markets cannot be improved-upon by any realistic central intervention.

[Crantag]

Libertarians too recognise the limitations and problems of "market-centric" economy. An economy should be "market-centric". It should be market-exclusive.

All the problems we both recognise with market-centric economies can be traced to the ill-effects of residual government intervention and interference in markets.

When allowed to operate freely, markets cannot be improved-upon by any realistic central intervention.

There are mountains of sound theoretical proof against basically everything you have said here.

But that is okay. We all have our predilection for fantasies.

[Classicliberal]

Despite what people like to say, China is still communist. It is a centrally planned economy. It's poised to be the largest economy.

Sure, China is still Communist, if you consider an economy that's half State Capitalism and half privately owned corporations to be "centrally planned"; and moreover, somehow equivalent to the Soviet central planning, but we both know that's not true. Deng Xiaoping started the transition from the Soviet (Stalinist) centrally planned economy with the advent of his Four Modernizations in 1978 and proclamation of "socialism with Chinese characteristics", a euphemism for: "we realize the Chinese Communist Party won't be able to hold onto power much longer if we keep the country stagnated in destitute poverty so we'll cloak free market reforms--Special Economic Zones--in Marxist-Leninist verbiage but still get away from economic suicide which is Communist orthodoxy." Moreover, China's economy will never be larger than the United States for a number of reasons: 1) the decline of the labor force is already increasing the cost of production in China, no more surplus labor means wages will have to rise and that means no more 7-10% growth per year; 2) while the Chinese Communist has thus far weathered pressure to release their grip on political authority, the rise of their middle class is bringing immense new challenges to maintaing their hegemony i.e. calls for greater public services, political participation, etc; 3) China's consumer market remains relatively small, in relation to its overall population, as compared to Europe and the United States, and it remains to be seen if the Export model can survive the transition from industrialized to post-industrialized economy. Not to mention China is still nearly 7 trillion away from being at economic parity with the United States.

This doesn't even address the effect the wide-spread corruption amongst the government bureaucracy has on the economy and its development. China really has been a miracle, a number of factors came together, and aligned almost perfectly, to produce what they've achieved; however, all good things eventually come to an end and that day is starting to appear on the horizon for China. It's not a coincidence Chinese nationalism is becoming a larger and larger tool for the ruling CCP; stirring up historical animosity to neighboring countries and (micro) expansionism have been the hallmark of authoritarian governments who can't deliver real reforms and need outward distractions to keep their citizenry occupied on anything but them [the ineffectual ruling government].

Frankly, a lot of your posts seem to convey you wanted less of a discussion than a forum to voice your preconceived 'Marxist' opinions with quotes like:

Where Marxists differ from market fundamentalists is that Marxists recognize the limitations of market-centric economy.

Marxism, at least Marxist-Leninist orthodoxy, is pretty clear in completely rejecting the market system as a rational system of productive organization, given, in orthodox Marxism's eyes, its inherent devaluation of Labor and its exploitation of labor's surplus value for the benefit solely of Capital. This interpretation, of course, is completely ignorant of one of the fundamental premises of established economic theory: voluntary trade, or transactions, will always benefit both parties when compared to the absence thereof. And this is just one example in a list of others that demonstrate the juxtaposition between market economics and Marxism, so, to be rather obtuse, I call bullshit on Marxists grasping anything about market economies other than a vague, and hyperbolic interpretation of business cycles as some self-destructive flaw, which will then bring about their glorious utopian perfect little word. Yeah, those Marxists sure understand economics.

[Truth To Power]

Despite what people like to say, China is still communist. It is a centrally planned economy.

No, China has never been communist. It was socialist under Mao and his immediate successors, but abandoned socialism under Deng. Capital is no longer collectively owned, though land still is, and the centrally planned part of the economy is the minority.

It's poised to be the largest economy.

But it is neither socialist (let alone communist) nor capitalist.

China has utilized free market mechanisms to effect growth to great effect.

It has used market mechanisms, but not a "free" market.

China may indeed have been the biggest winner of globalization, when all is said and done.

When all is said and done, a lot more is said than done.

Market economies are bounded by finite limits, not because of the physical limits per se, but because of the necessity of perpetual growth.

There is no such necessity.

[Truth To Power]

All the problems we both recognise with market-centric economies can be traced to the ill-effects of residual government intervention and interference in markets.

No, that's clearly false. There are many market failure conditions that have nothing to do with government.

When allowed to operate freely, markets cannot be improved-upon by any realistic central intervention.

Again, that's just clearly false. No one but Austrian school know-nothings like Hans Hermann Hoppe thinks markets can never fail or be improved on.

[Crantag]

Yeah, those Marxists sure understand economics.

Marxist economics is a distinct and highly successful and relevant body of theoretical discipline.

In fact, my posts through out this thread are for the most part grounded in Marxist economics.

[Crantag]

When it comes to the politics of China, we can get into semantical games and tie ourselves into knots all we like.

But perhaps some people reading understood my points.

By standard conventions and on relevant principles of the prevailing Chinese economy, China is indeed communist.

[Crantag]

There is no such necessity.

Capitalism is near entirely dependent on perpetual growth.

[Eran]

There are many market failure conditions that have nothing to do with government.

So-called "market failure conditions" are merely real-world situations in which markets operate differently from the idealised mathematical models of mainstream economists. Calling those "market failure" is like calling friction in an engine "mechanical failure" because the engine's efficiency falls below the theoretical maximum possible in a frictionless world.

Our mechanical world isn't frictionless (though oil helps). Our economic world isn't endowed with perfect information, unlimited number of sellers or buyers, or any of the other required attributes of "perfect markets".

And markets, to continue to analogy, are great at coming up with the economic "oil" required to reduce the friction associated with imperfect conditions. Thus to help overcome information deficiencies, many firms are in the business of providing people with relevant information.

Capitalism is near entirely dependent on perpetual growth.

No. Capitalism allows remarkable levels of growth, thereby enriching humanity to previously-unimaginable levels. But it doesn't depend on growth.

[Classicliberal]

When it comes to the politics of China, we can get into semantical games and tie ourselves into knots all we like.

Well given centrally planned economies are those, in practice, contrived by, typically, Communist parties or the horizontal governmental systems they dominate, I think the "politics of China" is an extremely relevant point to bring up--if you're going to assert the Chinese economy is, in fact, centrally planned.

By standard conventions and on relevant principles of the prevailing Chinese economy, China is indeed communist.

Let's define some of those "standard conventions and relevant principles" of what would make an economy "communist", at least from your perspective. As it seems your conception of a centrally planned economy is different than mine, which comes from the economic policies of other (former) Marxist-Leninist states.

Marxist economics is a distinct and highly successful and relevant body of theoretical discipline.

Highly successful how? In terms of equality of distribution? What is your definition of "success" in regards to Marxist economics in practical application?

n fact, my posts through out this thread are for the most part grounded in Marxist economics.

Yeah, I got that already, but thanks for clarifying.

Capitalism is near entirely dependent on perpetual growth.

Capitalism isn't dependent on perpetual growth; it's dependent on the choices individuals make, which have a multitude of different outcomes.