10 May 2010

Fat Man in Famine, and Squeaky Greece Takes the Wheel [UPDATE]

There was a time, dating back to the middle (dark) ages and for many centuries later, when portliness in a prospective spouse was a virtue, rather than a problem. The reason was famine. Since regular supplies of adequate food didn't happen until, realistically, after World War II, the specter of food shortages and outright famine was always hovering in the near future. A load of lard meant that one's spouse (and one's self, come to that) would be more likely to survive meager mealtimes.

The same principle applies in micro-economics: the very wealthy are nicely larded for depression. It was Andrew Mellon who said, shortly after the 1929 crash:

Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.

It was in Mellon's self interest (I can't force myself to say, enlightened self interest, because it surely was not) to see this happen. Note that he didn't include capital in the liquidation scheme (stocks, as he well knew, were not capital). This was a time when daily enemas were considered a key to good health and long life, Kellogg being a prime example. Mellon was merely advocating a healthy dump for all those miscreants who had unjustly filled up at the economic trough. Since Mellon, and the other robber barons of the day, had oodles of capital to hand, a period of deflation would be a good thing. Deflation lowers prices, which increases the value of one's capital. It's a matter of earning returns without risking anything. It is the case that wealth, as intelligence, is not absolute, but relative. Making everybody else (or at least, those one considers below one's self) poorer makes one's self richer.

Which bring us to the PIGS, Greece specifically for now. The PIGS are the five, presumed, effluvia from the Euro; Portugal, Italy, Ireland, Greece, and Spain. Of the five, Ireland is the surprise. The others have always been somewhat "backward". Ireland, on the other hand, has been done in by its recent machinations in the banking mess. A common currency is a good thing for Europe, in general, but as the Great Recession has made abundantly clear, a common currency means either a common (centralized) fiscal policy or none at all. The Germans (bless those Krauts) would rather the answer be none. What they seem unable to understand is what Eccles' said; capitalism's continued existence requires that most of the folks have most of the money, since the productivity increases resulting from increasingly mechanized (and, today, computerized and robotized) production have to be distributed. If this does not happen, collapse occurs. We here in the USofA have been skating on the edge of collapse since Reagan, since he and the Bushies worked very hard to restrict distribution of the productivity increases. Demand was supported by folks spending all that wonderful house price appreciation money. Ooops.

The Germans, and our native Wingnuts and Tea Baggers are too stupid to understand that the Golden Goose in all of this is not the Capitalist (what they insist on calling entrepreneurs, incorrectly of course), but the middle class consumer. Without the consumer, there is no market for all that prodigious output. Thus, Greece (and the other PIGS) must be supported, just as the endangered middle class here in the USofA. Without that support (call it re-distribution if you want), demand falls further and capital loses value.

Unless you are a Mellonite, of course. And therein lies the danger. Stupid people voting for Mellonites, on the fantasy that they will become Mellons in their lifetimes.


I re-read, mostly, when comments come in, and on occasion (and this is one) I see that I've left out a nugget.

Today's nugget is another of those shibboleths much beloved by the Wingnuts. They say (Jeremy Clarkson ringing in my ear) that most jobs come from Small Business, and that Small Business is the key to growth, and blah blah blah. What they conveniently omit is the productivity problem. Most Small Business is hamburger joints, hair salons, and dog washers; that is to say, non-capital intensive retail service work. Even the Wingnut economists (begrudgingly) admit that productivity increases haven't come in service sectors. So where has all that productivity come from?? Well, of course, autos and steel and the rest of capital intensive manufacturing. Not to mention that the Small Business jobs so beloved by Wingnuts are flipping hamburgers and washing dogs at (sub) minimum wage. Such a deal.

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