The great rentier give-away

With today’s fiscal update, the Trudeau government has really shown itself to be at the forefront of global left neoliberalism. Taking nearly all his cues from his business-dominated Advisory Council on Economic Growth, the Finance Minister announced a new Canada Infrastructure Bank as the centerpiece of the fiscal update and the Liberals’ economic strategy. Don’t believe the fanfare that is bound to come from the Canadian and international press, this isn’t anything progressive. It’s a new elite consensus that might become one of our main exports, pumped via virtual pipelines across the globe.

Here’s how Dominic Barton, the managing director of McKinsey Global, one of the world’s largest business consulting firms and head of the Advisory Council, framed the impetus behind the new bank:

Barton said infrastructure aimed at improving productivity will be of huge interest to foreign investors in search of steady returns with record low or negative interest rates in many parts of the world. “Infrastructure is the new fixed income,” Barton said in a speech over dinner at the conference. The mix of public and private capital has the potential to “jolt the system.”


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The Conservatives’ balanced budget legislation: Silly economics, smart politics

I wrote up the Conservatives’ new balanced budget law for Ricochet. In short, the law is really silly in terms of economics, but simply pointing out its economic stupidity is not enough, because the whole point is to shift the political consensus. Politically, it’s not that dumb. So rather than play games about who cut better and balanced budgets faster as many are doing, we need to look at the balance of economic power that drives these moves. The full piece is below:

The Conservative government’s balanced budget legislation is a classic attempt to shift the boundaries of acceptable public debate. In terms of economics, it is a silly exercise in arbitrary rule-making and its rules are bound to be broken. In terms of politics, it is another step in consolidating a consensus that puts punitive cuts to the many in the service of ever-larger gains for the wealthy few.

The legislation set to be introduced by the federal Conservatives along with the upcoming budget has been attacked as myopic and the result of twisted logic. Pundits left and right agree that the legislation will be unenforceable and thus unsuccessful in the long run. The problem with the law, however, is the already visible success of those pushing Canadian politics wholesale to the right.

16258234155_2e00d7cd29_zWhile details are still scant, the legislation aims to force subsequent federal governments to refrain from deficit spending except in as-yet-undefined “exceptional circumstances.”

We’ve seen this movie before. In Canada’s largest province, Ontario premier Mike Harris introduced balanced budget legislation only to have it repealed in 2004 and replaced with a softer version that does not stipulate outright balance every year. Most Canadian provinces have balanced budget legislation, but not surprisingly all suspended it at some point in the aftermath of the global financial crisis of 2008.

Even the Eurozone, the current poster child for austerity, has a limit on national government deficits (equal to 3 per cent of GDP) rather than a ban on them. Like other rules of this type, though, the number itself is not as important as the lack of flexibility and the push for spending cuts as the default response to crisis. The Eurozone rule has certainly contributed to Europe’s inability to escape stagnation and prolonged crisis since the financial crash — despite being broken by various countries, largely those powerful enough to get away with it.

Arguments like these, however, do not get at the heart of the matter. It’s good to have a few of them out there, but balanced budget legislation is most dangerous not because it’s bad economics, but because it is good politics. (more…)

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Robots, migration and the future of work (Briarpatch Magazine)

I have a longer read in the newest issue of Briarpatch Magazine, which is dedicated to the world of work. If you don’t know Briarpatch, be sure to check out the other articles in this issue and consider subscribing; this is one of Canada’s oldest independent left publications and definitely worth supporting. My piece has the rather grand title “Robots, Migration and the Future of Work” but it’s really about trying to see how we are often pitted against one another and encouraged to see external threats, like machines and migrants, to our well-being rather than working together in solidarity against systemic causes.

The past several decades have not been kind to workers, as most of us know only too well. Those making minimum wage are making a penny more in real terms than they were in 1976, union membership continues to fall, and wage growth for most has been anemic – far outstripped by rising productivity. And this is to say nothing about how unfulfilling the jobs that swallow the waking hours of our lives can be. Yet when workers speak out, whether about our own crappy working conditions or the absurd enrichment of those at the top, we’re greeted by a familiar chorus that is often loudest inside our own heads: just be happy that you have a job at all.

For some, the implied culprit in the background of this story is the much poorer worker in the Global South, whether at a maquiladora in Mexico, a sprawling electronics factory in China, or a call centre in India. As Canadian workers have been integrated into a globalized economy, the story goes, they can be kept in check by what happens halfway across the world. Labour discipline isn’t just – or perhaps even mostly – a function of globalization, however. There are many domestic pressures keeping workers in line and the economy unkind.


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There is no good value

A piece in the Financial Times from several days ago has finally pushed me to scribble down a few initial thoughts on value – a topic I been thinking about more and more. Titled “The attack of the rentier killers”, the article argues that the wealthy who hold and receive income from assets will fight low interest rates and rising inflation tooth and nail because it lowers the value of their assets. Paul Krugman has recently picked up on this topic as well, while the notion that only sustained low interest rates can “euthanize” a dangerous, politically-motivated rentier class originally comes from Keynes.

There is much to be said about this claim. One question is whether there currently exists a well-defined rentier class whose interests are opposed those of a class of capitalist producers. The growth of finance and its increasing integration into all other aspects of the economy challenge this idea. Furthermore, the current application of extraordinary monetary policy has produced a combination of low interest rates and low inflation. The former decreases the flow of gains from interest-bearing assets; at the same time, the latter means that all assets better maintain their value. Finally, current policy has led to a greater concentration of assets (I posted some thoughts on this here), which has disproportionately benefited the wealthy.

In writing this, however, I was motivated by a smaller point that comes right at the end of the Financial Times article:

Based on [the previous] analysis, the surest sign that our society is on the verge of […] a secular stagnation story is the increasing frequency and severity of bubbles today. But if they’re really symptomatic of the death throes of the rentier class, then perhaps they shouldn’t be feared by central bankers at all?

Instead, central bankers should start thinking about ways to create entirely new forms of positive value in society based on social, educational, sustainable or even humorous activity? Carbon credits, RINs, energy rationing units, brownie points and Dogecoins, and so forth.

I want to focus on the phrase “positive value.” I take this to be opposed to “negative value.” A likely example of the latter would be the financial returns that accrue to rentiers while asset price bubbles are being inflated; with the problem being that these same bubbles also end up harming others when they burst. The argument is that rather than continue to allow for the creation of financial bubbles that have negative economic impacts, we should instead create sinks into which rentiers can pile their money looking for higher returns, but which will also be socially-useful. Tongue firmly planted in cheek, the author even suggests feel-good brownie points as a worthwhile “positive value”-generating asset bubble vehicle. (more…)

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Demand or destruction: Two ways out of the profitability puzzle

In my previous post, I outlined the disconnect between profitability and investment in Canada’s private sector.  While businesses are doing well and profits have rebounded quickly after the global financial crisis of 2007, investment has continued its slow and steady 20-year decline.  This decline is especially visible when investment is related directly to profits. Slightly more than 60% of gross profits are currently being re-invested, down by a third relative to just two decades ago.  Such a gap between strong profitability and dismal investment does not correspond with standard accounts of how the economy functions.  According to standard accounts, strong profitability should encourage investment, not depress it further.  This theoretical relationship is not borne out in recent Canadian experience.

While the last post also examined a few factors that could have been at play in creating this odd state of affairs, here I want to move in the opposite direction and look at two competing pictures of how to revive low private-sector investment.  The first picture comes from Keynes, the second from Marx.  I am particularly indebted to Michael Roberts, who has written extensively on the crisis from a UK perspective and who used a similar framework in a recent article (on the adoption of the idea of a permanent slump by mainstream Keynesians).

The two pictures agree on a diagnosis of on-going stagnation – with low investment being just one feature.  Indeed, the lack of sustained recovery across much of the developed world has led increasing numbers of mainstream economists to declare that the current slowdown is permanent.  Paul Krugman, likely the most prominent Keynesian economist, recently wrote that we may have entered a “permanent slump.”  Even the more hawkish Larry Summers has added his voice to the chorus, referring in a recent speech at the IMF to a period of “secular stagnation”.  Many Marxist and other radical economists have, of course, been making the same point for years, citing a variety of structural changes and imbalances in the economy, particularly those that characterize the neoliberal period that began in the 1970s when the great post-war boom lost steam.

While their diagnosis may be similar, Keynesian and Marxian economists see the way out of the current long-term slump rather differently. (more…)

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