Gluttony

The ongoing assault by the Right Wingnuts, blaming the victims, has led to a further consideration of The Fed's historically low interest rate (or is it?). From simple observation, the creation of, and demand for, all those mortgage loans (good yield, no risk) was the necessary result of an over-supply of capital. After all, without a supply of capital, these loans (packaged or not) would have no buyers. The flight to "safe" mortgages was propelled by Greenspan's collapse of interest rates for quite other reasons. For that Greenspan deserves all the shit that he gets. The general move from productive physical capital to fiduciary capital is whole other story, and a grotesque one, at that. It is not a good sign.

But, it seems, there's a larger moral to the story. There's always been a single global economy; this is not something invented in 2000 by Apple. The difference is in speed of execution, not structure. For those who suffered through Econ. 101, we're in a period of New Mercantilism, except that the USofA is the captive raw materials one, while the RoW is the productive ones. Payback's a bitch.

What the subprime debacle demonstrated is that Eccles (and Marx, not Groucho) are both substantially correct. Capitalism demands widespread demand for produced goods; while increase in productivity of capital is often viewed as a shift in wealth from labour to capital (it is), it can't be sustained without a replacement income sink. In simpler words, labour made redundant by increased physical capital in some sector of the economy, *must* be re-employed (at increased wages) if capital is to earn a return in the medium to long term. Using capital to simply cut labour costs, while a goal for the individual company, has to be avoided at the macro level. Without that, return on real capital (as distinct from the fiduciary juggling which seems to be the USofA's only sector) will plummet.

The problem, as the Wiki article on the saving glut, bullet points: the real return on capital must fall if incomes are concentrated into merely the hands of capitalists. It is, to quote every Econ 101 teaching assistant, simply supply and demand. Too much capital chasing too little demand for goods. The lack, real or perceived, of risk appropriate physical investment is the underlying issue. All that Chinese savings *could* have been put to use building new plant and equipment for new and existing industry. It wasn't. That's a really big problem.

The development ladder (a term just coined by me, here) has been the saviour of Right Wingnut capitalists since the mid 19th century. The industrial revolution played out in farm lands, "releasing" (the economist's euphemism for dis-employing) workers to migrate to cities with factories. Note carefully: return on real capital is dependent on technology improvements which boost output. Fiduciary returns can, and the subprime debacle is the archetype, only be sustained to the level of median income growth. Put specifically for housing: this is not an investment, merely serial consumption. Housing mortgages are only supported by households *real* income growth, not by some notion of product output growth.

When manufacturing workers saw themselves being "released" in the 1970s, this was viewed by many, both in the economics field and elsewhere, as a good thing. The USofA was moving beyond simple widget making, to brain work, services; necessarily higher skilled and higher pay. The problem with that idea is that it's largely false. We can see that now. Some saw it then (humble self included). Higher wage service work is not "consumed" by households the way iPads are, but by corporations. There are the historical exceptions, doctors and lawyers (well, not all would agree the latter is proper example), of course, but systems' analysts don't work in store fronts selling to walk-ins. Hair dressers, sure, but brain workers.

And then there's the problem of India. A country which, essentially, hands out IT degrees for free, but doesn't have a domestic infrastructure to employ them instantly turns predatory. And so it was.

The development ladder was a cruel joke. Henry Ford figured it out 100 years ago. Eccles echoed him a generation later. And now we face diminishing natural resources, such that there just isn't enough stuff in the ground to "develop" the RoW to USofA's standards. And that's just at the median. The reality is that the USofA is about 4% of the planet using 24% of the resources, but the resulting largess is enjoyed mostly by the 1% of USofA. That can't be the goal, since it can't be attained. No matter how much ideological zealotry spewed by the Right Wingnuts, most Americans don't live as they do. There's no chance that 3 billion Asians will attain the level of decadence of 25 millions Americans. Hell's bells, it would be nice if the other 99% of Americans could.