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Guest Post: Marx, Labor's Dwindling Share Of The Economy And The Crisis Of Advanced Capitalism

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Submitted by Charles Hugh Smith from Of Two Minds

Marx, Labor's Dwindling Share of the Economy and the Crisis of Advanced Capitalism

All attempts to reform the Status Quo of advanced finance-based Capitalism will fail, as its historically inevitable crisis is finally at hand.

It is self-evident that conventional economics has failed, completely, utterly and totally. The two competing cargo cults of tax cuts/trickle-down and borrow-and-spend stimulus coupled with monetary manipulation have failed to restore advanced Capitalism's vigor, not just in America, but everywhere.

Conventional econometrics is clueless about the root causes of advanced finance-based Capitalism's ills. To really understand what's going on beneath the surface, we must return to "discredited" non-quant models of economics: for example, Marx's critique of monopoly/cartel, finance-dominated advanced Capitalism. ("Capitalism" is capitalized here to distinguish it from "primitive capitalism.")

All those fancy equation-based econometrics that supposedly model human behavior have failed because they are fundamentally and purposefully superficial: they are incapable of understanding deeper dynamics that don't fit the ruling political-economy conventions.

Marx predicted a crisis of advanced Capitalism based on the rising imbalance of capital and labor in finance-dominated Capitalism. The basic Marxist context is history, not morality, and so the Marxist critique is light on blaming the rich for Capitalism's core ills and heavy on the inevitability of larger historic forces.

In other words, what's wrong with advanced Capitalism cannot be fixed by taxing the super-wealthy at the same rate we self-employed pay (40% basic Federal rate), though that would certainly be a fair and just step in the right direction. Advanced Capitalism's ills run much deeper than superficial "class warfare" models in which the "solution" is to redistribute wealth from the top down the pyramid.

This redistributive "socialist" flavor of advanced Capitalism has bought time--the crisis of the 1930s was staved off for 70 years--but now redistribution as a saving strategy has reached its limits.

The other political-economic strategy that has been used to stave off the crisis is consumer credit: as labor's share of the economy shrank, the middle class workforce was given massive quantities of credit, based on their earnings and on the equity of the family home.

The credit model of boosting consumption has also run its course, though the Keynesian cargo cult is still busily painting radio dials on rocks and hectoring the Economic Gods to unleash their magic "animal spirits."

The third strategy to stave off advanced Capitalism's crisis was to greatly expand the workforce to compensate for labor's dwindling share of the economy. Simply put, Mom, Aunty and Sis entered the workforce en masse in the 1970s, and their earning power boosted household income enough to maintain consumption.

That gambit has run out of steam as the labor force is now shrinking for structural reasons. Though the system is eager to put Grandpa to work as a Wal-Mart greeter and Grandma to work as a retail clerk, the total number of jobs is declining, and so older workers are simply displacing younger workers. The gambit of expanding the workforce to keep finance-based Capitalism going has entered the final end-game. Moving the pawns of tax rates and fiscal stimulus around may be distracting, but neither will fix advanced finance-based Capitalism's basic ills.

The fourth and final strategy was to exploit speculation's ability to create phantom wealth. By unleashing the dogs of speculation via a vast expansion of credit, leverage and proxies for actual capital, i.e. derivatives, advanced finance-based Capitalism enabled the expansion of serial speculative bubbles, each of whcih created the illusion of systemically rising wealth, and each of which led to a rise in consumption as the "winners" in the speculative game spent some of their gains.

This strategy has also run its course, as the public at last grasps that bubbles must burst and the aftermath damages everyone, not just those who gambled and lost.

Two other essential conditions have also peaked: cheap energy and globalization, which opened vast new markets for both cheap labor and new consumption. As inflation explodes in China and its speculative credit-based bubbles burst, and as oil exporters increasingly consume their resources domestically, those drivers are now reversing.

Advanced Capitalism is broken for reasons conventional economics cannot dare recognize, because it would spell the end of its intellectual dominance and the end of the entire post-war political-economic paradigm that feeds it.

Let's look at some charts to see what conventional economists must deny to keep their jobs.

Take a look at this chart. What reality does it reflect? A failure to cut taxes enough? A failure to print enough money or extend enough credit? No. What it reflects is labor's dwindling share of the economy.


The structural reality is that employment is declining:

Meanwhile, after-tax corporate profits have steadily climbed to nearly 10% of the entire national income:

Note the recent rise of finance-based profits:

This chart leaves no doubt that the engines of the past 30 years "growth" and "prosperity" have been credit and credit-fueled speculation:

If we look at disposable income, we find that direct government transfers have masked the systemic erosion of labor's earnings and employment:

By at least some measures, the top 1% are paying a greater share of total taxes than they were 20 years ago, which suggests that "tax the rich will solve everything" stopgaps have limited purchase on the deeper structural ills of advanced finance-based Capitalism.

Marx identified two critical drivers of advanced Capitalism's final crisis:

1. Global Capital has the means and incentive to keep labor in surplus and capital scarce, which means that capital has pricing power and labor has none. The inevitable result of this is that wages, as measured in purchasing power, fall while the returns earned on capital rise.

This establishes a self-reinforcing, inevitably destructive dynamic: once labor's share of the national income falls below a critical threshold, labor can no longer consume enough or borrow enough to keep the economy afloat with its cash and credit-based consumption.

We are at that point, but massive Federal borrowing and transfers are masking that reality for the time being.

2. The dual forces of competition and technology inevitably drive down the labor component of all manufactured goods and technology-based services. Mechanization, robotics and software have lowered the labor component of everything from running shoes to computer chips from $20 per item to $2 per item, and that process cannot be reversed. While the wage paid to the workforce designing and manufacturing the products and providing the services may actually rise, the slice of revenues given over to all labor continues shrinking.

This is what I have constantly referred to (using Jeremy Rifkin's excellent phrase) as "the end of work."

Put another way: the return on capital invested in techology greatly exceeds the return on labor. Industries and enterprises which fail to leverage capital invested in technology that lowers the labor component of their good/service eventually undergo rapid and inevitable creative destruction.

We are about to witness this creative destruction in the labor-heavy industries of government, education and healthcare.

Marx's genius was to recognize the historical inevitability of these internal forces within advanced Capitalism. He also recognized the inevitability of finance-capital's dominance of industrial capital--something we have witnessed in full flower over the past 30 years.

Finance capital now dominates not just industrial capital but the machinery of governance, rendering real reform impossible. Instead, the Status Quo delivers up simulacrum "reform" which change nothing but the packaging of the Central State/Cartel Capitalism's exploitation and predation.

Add all this up and you have to conclude the final crisis of finance-based advanced Capitalism is finally at hand. All the "fixes" that extended its run over the past 70 years have run their course. Life will go on, of course, after the Status Quo devolves, and in my view, ridding the globe of financial predation and parasitism will be a positive step forward.

The real solution is to understand advanced finance-based global Capitalism will unravel as a result of the internal dynamics described above, and be replaced with an economic and political Localism that I describe in my new book An Unconventional Guide to Investing in Troubled Times.I don't claim these ideas are unique to me; many others have described the same dynamics and historical trends.


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Wed, 08/31/2011 - 12:52 | 1619275 Gully Foyle
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Those are my principles, and if you don't like them... well, I have others.

Groucho Marx

Wed, 08/31/2011 - 13:12 | 1619341 wang (not verified)
wang's picture


where's Harpo when you need him?


Mistaken Marxist moments

During almost every one of the periodic crises that affect mercantile economies, voices are raised saying “Marx was right after all”. A few years ago Nicolas Sarkozy was seen ostentatiously clasping a copy of Das Kapital, while in recent weeks financial gurus, including Nouriel Roubini and George Magnus, have written articles referencing the communist thinker. When recovery occurs the cry vanishes, only to reappear next time there is a bust. The first thing wrong with the slogan is that it has little to do with Karl Marx. I remember the otherwise highly intelligent professional lady who, when asked why she was a Marxist, replied: “I got bored with my father’s friends.”

Wed, 08/31/2011 - 13:38 | 1619466 midtowng
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Most people, even some so-called Marxists, have no idea what Karl Marx actually said.

Wed, 08/31/2011 - 14:11 | 1619629 ratso
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Right you are.  Tyler is unfortunately writing some crap again.  He should stick to what he knows.  

The fact is the American families and workers are being continually manipulated, exploited and lied to by the multinational corporations and the governments that these corporations have bought and paid for.


Wed, 08/31/2011 - 14:41 | 1619795 Conrad Murray
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Congratulations, you have recieved first prize in the shithead of the day runnings, not simply for your inability to read the very first line of the post, in which it is made clear this is not a ZH/Tyler piece, but also to have not read one word at all, bash it, and then draw the same conclusions it put forth(and are the macro themes of this guest writer). Jackass.

Wed, 08/31/2011 - 16:28 | 1620389 Timmay
Timmay's picture

I could only give you one positive vote up, I would have given more if I could. Sad to see this type of riff raff has infiltrated (allowed) to post comments here.

Wed, 08/31/2011 - 15:48 | 1620158 Michael
Michael's picture

"Though the system is eager to put Grandpa to work as a Wal-Mart greeter and Grandma to work as a retail clerk, the total number of jobs is declining, and so older workers are simply displacing younger workers."

There should be an entire thread discussion on this one sentence alone. 

Wed, 08/31/2011 - 19:10 | 1620957 i-dog
i-dog's picture

The real problem is that the MIC (Morons-In-ChargeTM) are making absolutely zero attempts to encourage / promote / foster high value-added employment for the millions of college graduates each year.

The opportunities to move up the food chain that are afforded by off-shoring dirty / menial / dangerous jobs to "developing countries" have been totally ignored by the regulatory and taxation arms of the American and British Central PlannersTM. Of the Western economies, only Germany has continued to develop a high quality manufacturing base that exports equipment and products sought after by both the developing and developed world -- while they were the first country to offshore labour-intensive manufacturing to the BRICs.

Co-incidentally, Germany also still maintains a high degree of family ownership of major corporations (ie. innovative private enterprise fostering both employment and customer satisfaction).

Wed, 08/31/2011 - 14:19 | 1619674 Sudden Debt
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When the IMF and the World Bank force a country to cut wages, lay off workers, produce for export instead of their own people, and sell off public property to cronies for less than its value, that's called "economic reform”.
Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it

Wed, 08/31/2011 - 14:23 | 1619703 Sudden Debt
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And you have people who know what Marx said but don't know what he meanth by it.

They are called "Marx Wannebe's", WB's in short.


Wed, 08/31/2011 - 23:18 | 1621578 Newsboy
Newsboy's picture

Marx is really hard to read. Compilations of excerpts, with historical introductions and analysis may be the best bet.

I think being to obtuse and wordy and soporiphic probably kept him alive. If everybody could read and comprehend what he wrote, he would have been killed in his 30s, like Jesus was.

Wed, 08/31/2011 - 14:43 | 1619804 jakethesnake76
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Kinda like global warming huh lol  

Wed, 08/31/2011 - 15:35 | 1620069 NOTaREALmerican
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Being right about what is wrong with capitalism, doesn't mean he knew what the solution was.

None of the economic ISM's work unless humans are perfect.

The socialists need their perfect humans, the libertarians theirs,  the capitialists their's.     The only ISM that naturally works is fascism, because humans are mostly sociopathic assholes.    Fascism doesn't need perfection, that's why it's the natural ISM. 

Wed, 08/31/2011 - 13:07 | 1619277 baby_BLYTHE
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none of our problems will be solved until wage arbitrage comes into balance with that of China and the developing world which means real wages have no where to go but down. At which point we won't have much of a nation left

Wed, 08/31/2011 - 13:21 | 1619381 LedMizer
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If the US had a sensible trading policy we would slap tariffs on the goods coming into this country by means slave labor wages and environmental poisoning occuring around the world.  Couple this with scaling back our own non-labor cost to manufacture and we might see a return to growing our manufacturing sector.

Wed, 08/31/2011 - 13:57 | 1619565 Leopold B. Scotch
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Or the U.S. could:

  • Stop the massive dislocations of its economy by ending the money printing / credit expansion and return to honest money
  • Free the system from concentrated central power that is inevitably co-opted by special interests -- like banking, corporatist parasites, the parasite service class that enables legislated technocracy that produces no wealth, etc.

Marx's problem, like so many today -- even Warren Wanker Buffet recently -- is that they size up the problem along the lines of classes... labor vs. management, rich vs poor... instead of what's really going on.  This is wealth creators / producers thereof vs. exploiters of said wealth / productive ability. 

Yeah, labor is a component, but the biggest problem in the u.s. is the slouchy business environment, the uncertainty, the crumbling property rights, and the mega govt co-opted by parasites on all levels.

Das Kapital is fleeing for more reliably safe shores... that, oh... BTW... has lots of exploitable labor.

Wed, 08/31/2011 - 14:16 | 1619659 sun tzu
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We need fair trade, not free (unfair) trade. The government is out to deindustrialize and destroy American industry

Wed, 08/31/2011 - 14:52 | 1619844 Leopold B. Scotch
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Watch out for what happens to CPI when you bottle up all the money printing inside U.S. borders.

We'd have more balanced trade if we didn't subsidize the exportation of our economy (and "unfair" trade)  with massive money printing and credit expansion.  We'd have no choice, otherwise.

Wed, 08/31/2011 - 13:34 | 1619421 myne
myne's picture

At the end of the day, it's not wage arbitrage. It's lifestyle arbitrage. They are competing with you for the same inputs, but they deliver higher outputs with thier lifestyle than you can.

You could all chose to live like the Chinese, and then you should find that you can compete with them.


That aside, the end of work is inevitable. And I've commented at length on here before. The answer is to enforce lower working hours.

Only then can the current system continue to work AND increase the labour share of profit. Ignoring the debt from the wars, if the USA tomorrow instituted a 20% cut in the work week, within a month there would be full employment. With full employment comes lower taxes to pay for welfare. With lower hours, comes better health, saving taxes/wages there too. With more free time, comes more integrated families and communities. Reducing depression, crime, etc.

Basically, it can be fixed and it's easy to fix. It will happen - eventually. Probably after the global debt default because people are stubborn creatures.

Wed, 08/31/2011 - 13:47 | 1619505 lasvegaspersona
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I doubt this would work. What about people who are just naturally productive? Would you stop them from producing just so some other person could have 'a job'? What would stop someone from working 2 or 3 jobs? Should we actively insist the most effifient become less efficient? Instead of digging with shovels have folks use spoons?

Wed, 08/31/2011 - 14:18 | 1619665 myne
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Google "The 8 hour movement"

Then consider the implications to the economy as a whole when 1/6th of the working week was cut.

Did it collapse? Did it fundamentally change? Did anything about human nature change?


It rebalanced and continued. The more productive got promoted, and the less productive didn't. Everyone continued to use the most effective tools to achieve the desired outcome. I think you're mistaking my proposition for the Keynsian idea of digging and filling ditches. I'm not suggesting being less productive.

I'm suggesting that we need less hours to achieve the production required to sustain everyone. Therefore, rather than impose taxes on the workers to support the non-workers or give the unemployed tasks that achieve no production; you cut hours for the workers, to increase the overall number of workers. Which should achieve the same net production and the same net income, with a lower tax burden. Like it or not, the workers support everyone with their product. Giving someone a useless job for the sake of having a job does not change this fact.

Wed, 08/31/2011 - 14:39 | 1619786 Leopold B. Scotch
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The problem is the lack of the efficient use of scarce resources. That problem is created by meddling in the nature of price discovery which is governed by supply / demand and time preferences.

You complicate the process and create distortions by legislating these sorts of things, which compounds the problem rather than solving it.  Labor has a clearing price and a finite demand.  Let it be found by the market, not minimum wage / big labor / 8 hour movement advocates.

To that point, the 8 hour workweek was a luxury that could be supported on the back of tremendous savings and wealth production.   Same can be said for child labor laws, schooling of children, etc.  Undeveloped economies lack any semblance of such since all labor must go to survival first and foremost.  Absent savings, we're all hand to mouth.  The problem is the economic policy and political environment of the United States in the last century has devastated the pool of real savings and the ability to create more of it.  It has nothing to do with the hourly work week of the average laborer.  Just ask your average sub-Saharan African.

Wed, 08/31/2011 - 14:51 | 1619839 myne
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A lot of that, especially the 20th century had to do with very cheap energy from locally sourced oil. You're now a net oil importer clinging to the lifesyle of an oil exporter. I'm not discounting savings. Just saying there was a big leg up back then. When oil was spurting freely from randomly drilled holes in the ground, it's extremely easy to create a fantastic lifestyle from your wealth.

Soon enough, we'll all be riding motorcycles.

Wed, 08/31/2011 - 15:21 | 1619961 Leopold B. Scotch
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My undersstanding is, adjusted, the cost of energy today is really not that different and might even be better priced all things considered (inflation adjusted, etc.)... Heck, oil was at $12 a barrel in '98 or so -- not all that long ago.  Technological advancements in extracting the stuff, its comparatively quite affordable.  And really, you should be talking Coal, not oil, if we're talking about the U.S. and its massive strides in industry and wealth.

Granted, we're seeing supply issues becoming more of a problem more recently, likely because the easy to get at stuff is running a bit dry compared to the past (in addition to geo-political issues, and the debasement of the petro dollar...).

But it was no uber cheap affair in the 1800s and early 1900s to extract oil or, for that matter, the more dominant energy source: Coal.  It's much easier today with super advanced machinery vs. the old labor-intensive methods back then.

What's changed mostly when it comes to the price of oil is the adjustment vs. a depreciating petro dollar, ties into the point about destroying savings through inflation.

Wed, 08/31/2011 - 14:33 | 1619724 Leopold B. Scotch
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Precisely why such suggestions today or in FDRs time were simply moronic.

What's lost in this discussion is the concept of savings and how inherently important it is to the health of an economy.  What's been squandered in the United States over the last century is its vast store of accumulated savings, it's national seed-corn, if you will.

Consumed more and more irreverently by the exploitation class (politicians, power mongers who own government, special interests, etc., who co-opted legislation to their benefit at the expense of the common man (looking at you Big Corporatist Biz and Big / Govt Organized Labor), the economic seed corn has been put to crappy use if not simply consumed by non-wealth producing activities, and so the U.S. gradually reverts to its past.

How'd it happen?  In the U.S. you once had full rights to your body, labor, and fruits thereof.  (Ok... big mistake was initially this was not acknowledged among those with the wrong skin color, but table that for now... but the premise was sound for most...)  People could operate in the U.S. knowing that they were entitled to the full wage of their labor, and that they could then acquire property based on the fruits thereof.  Those who were most industrious would set aside that production as savings, and then convert it to investment / capital that itself would produce more wealth = more stuff.  Compounded year after year after year, and with laws preventing the parasite classes of government, business, special interests from the means of stealing those rights, that wealth grew and grew and grew.   Someone could come off the boat as a former European serf and have the chance to save and acquire property.

Certainly there were always newcomers on the low end of the totem, and then there were those simply not terribly able... but the opportunity was there, as was there the always the opportunity to create a new business to invent ideas, and create competition, raise standards of living as more and more people grew into the system as the system protected and nurtured the growth of the store of productive capital and savings.  And for the most part, the economy was geared towards meeting genuine wealth creation/ life improving / focused needs of others, like plumbing, clothing, housing, new transportation, farming, new technology, etc.

Where things went bad was once government was consolidated sufficiently to be for sale, and when special interests could start raiding the pockets of others either  directly or through legislation that made competition more difficult, limited competitive labor environments.  Bankster frauds were legislated into existence where they could legally counterfeit and not be prosecuted for having loaned out / issued more bank demand deposit notes than gold they had in storage to back those notes.  The economy was transitioned away from producing real stuff to producing unnecessary, even hated things... like "tax compliance services", or small business stiffing regulation compliance... or overpaying for labor (vs. the private / real wage market), for government projects that produced political cache vs. real, genuine need...  for welfare that exceeded the charitable intent of a community helping hand, instead creating a near permanent (and massively growing) underclass of citizens whose time preference is the next 5 minutes, who see no benefit / need for a nuclear family, an entitlement dependent environment which increasingly is crime-riddled and lacks any sense of productive responsibility / opportunity.

Then there is the industrial warfare complex... The varied  special interest global policeman types... etc. etc.  The Uber Green socialistas / Marxists, who outright hate private property.  The corporatist greens looking to make a fast buck off even the stupidest neo-green movement, never mind how damaging it really is to an economy and its long term viability... the $ billions into failing green projects that are politically connected and never were really ready for prime-time... The ethanol subsidy and requirement regulation... the Carbon Trading Exchange concept which forces everyone to pay uber extra through the trolls at the toll bridge, run by the likes of Goldman and Al Gore.

And, so the economy converted from one that provided safe opportunity for wealth creators and overall improvement in the quality of life, to parasites and opportunists who have absolutely no respect for your or my right to say "no thanks" to their demands to meddle at the expense of your paycheck, your nation's solvency, your currency's viability, and fundamentally to your body, life, and property. 

Nothing is sacred.  Special Interest Government Uber Alles!

So instead we get proposals for people to work less... because, I suppose, everyone already has all they need?  Nobody can contribute anything further to the economy than a lower hour work week?  WHAT A JOKE!

The problem is there is insufficient capital and savings to make these people more productive, no different than the problem in China under Moa.  Note how china allowing for more vestiges of private property, personal opportunity to save and reinvest while not having it all belong to the state has manged to turn the economy around?

Granted, still many problems in china.  But low wage alone does nothing.  Never worked for them for the first 40 years.

The U.S. needs to restore private property rights and the right to say "No Thanks" to those stealing your rights, money, purchasing power, etc.

Wed, 08/31/2011 - 13:55 | 1619552 blunderdog
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It's not easy to "live like the Chinese" in most of the USA.  We don't have the infrastructure they have which makes it so practical.  Mass transit, dormitories, low-cost food providers, etc.

You're right about the lifestyle arbitrage bit, wrong about how simple it is for an individual to adapt.

Wed, 08/31/2011 - 14:20 | 1619677 sun tzu
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You could all chose to live like the Chinese, and then you should find that you can compete with them.

You mean we can choose to live like slaves.


if the USA tomorrow instituted a 20% cut in the work week, within a month there would be full employment. 

Stupid idea. The French already tried it and their normal unemployment rate is nearly 10%. Businesses would move overseas within a year and the cycle would continue

Wed, 08/31/2011 - 14:25 | 1619719 myne
myne's picture

I think it can be done right. I think it can achieve a win for businesses, a win for workers, and a win for overall efficiency.

I posted how here:

Wed, 08/31/2011 - 15:02 | 1619915 falun bong
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Then explain why French GDP per capita is the same as the USA, even with a much shorter workweek?


Wed, 08/31/2011 - 15:11 | 1619947 myne
myne's picture

It's not. Though it's not that far behind.

I'm surprised Australia's (me) is so much higher than the US though!

Wed, 08/31/2011 - 15:58 | 1620229 Debugas
Debugas's picture

absolutely right. It just happens that there are so many jobless chinese there that they all agree to work for food only.

Wed, 08/31/2011 - 16:35 | 1620420 narnia
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the natural tendency of a free market is deflation.  products or services are introduced into the market if they can be delivered for less cost or provide greater benefit.  the end game of free markets is the plentiful production & widescale availability of products people want.

the only force that can prevent deflation is taxation imposed by force.  taxation is the arbitrary allocation of costs on the private sector to finance politically determined economic activity, such as the purchase of bombs & a bunch of other products that the free market would not otherwise produce (which have to be financed, in addition to making the free market determined products more scare), the standards by which the free market is producing the products people want, or the charitable reallocation of resources.

we reached the point long ago in our centrally controlled nation where the taxation exceeded the the ability of the private sector to pay for it.  we are now coming close to the end of the borrowing capacity of the private sector to perpetuate this deficit.

the reset is the ultimate liquidation of the perceived price effect forced on the market by taxation & the extension of credit born by deficits in financing taxation.

Wed, 08/31/2011 - 13:39 | 1619476 midtowng
midtowng's picture

Either that, or we could re-introduce some sanity in our trade policy.

Granted, that is unlikely, but it still is an alternative.

Wed, 08/31/2011 - 14:23 | 1619697 DUNTHAT
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Wed, 08/31/2011 - 15:08 | 1619936 Mountainview
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China makes no secret out of it and the EURO seems to fluctuate around some mutually accepted 1.45 rate. Remains Gold as the only true money.

Wed, 08/31/2011 - 15:20 | 1619969 Rynak
Rynak's picture

Sorry blythe, but this is the most stupid post of you, that i have read so far, and i over time have red quite a few (and agreed with most of them).

Unemployment CANNOT logically be solved, by trying to outrun each other, by engaging in a race to the bottom. In fact, what you propose is pretty much impossible to do, for a very simple reason: Exporters like china and germany intentionally discount wages, so that corporations can produce at wages, that are so low, that local buying power dries up - so that said corps can then export the goods to countries that can afford them. Alternatively, the state one way or another subsidizes the wage discounting, via entitlements for the poor.

To get to the point: Countries like china are producing at wages too low for the domestic market to function on its own. THAT only so far SEEMED to work, because govs paid for the lack of buying power and/or the goods were exported to countries that can afford them.

Phrased another way: What you propose, would result in near unlimited gov spending, since if wages are low everywhere, exporting is no option anymore... and thus the only bitch of last resort left, to prop up buying-power, is the gov.

Trying to outrun other countries in a race to the bottom cannot fix the unemployment problem. Actually, unemployment shouldn't even be a problem.... it only is a problem, because the economic model relies on people being employed. Understanding why "you need a free market job to survive" is totally braindead, especially in nowadays industrialized civilization, does however require to for a moment forget everything you take for granted from capitalism, and go on a slightly "communist" thoughtpath...... because, the reason for the unemployment anomally, lies not on the individual level, but on the collective level.

Wed, 08/31/2011 - 15:26 | 1620024 sgt_doom
sgt_doom's picture

"..wage arbitrage comes into balance with that of China ..."

baby_BLYTHE (Blythe Masters, perhaps????) makes the most absurd, nonsensical and typically International Chamber of Commerce talking point repitition.

Obviously, the Totalitarian Capitalist State of China specifically sets their wages -- Point 1.

Obviously, labor arbitrage (jobs offshoring to cheapest labor markets) will always continue, regardless of how low the wages fall, because it most conveniently aids in tax evasion -- Point 2.

Obviously, since there is no real "competition" with anyone as the American-based multinational facilities and factories and R&D are located offshore to which they ship said jobs, then re-import said goods (although frequently listing them as "exports"), there exists no actual compeition in a completely artificial and rigged environment -- Point 3.

You're an idiot..... -- Point 4.

Thu, 09/01/2011 - 11:54 | 1622830 baby_BLYTHE
baby_BLYTHE's picture

Chamber of Commerce is all for free-trade (not fair trade). There are number of policy tools (including Constitutional ones- like tariffs) that could easily resolve global-wage and environmental imbalances

final suggestion-- Throw yourself on a rusty nail.

Wed, 08/31/2011 - 12:54 | 1619284 docj
docj's picture

"Advanced Capitalism"? Is that what we have?

Unless by "Advanced" you mean "Crony" I really have no idea what the heck you're talking about here. Sorry.

Wed, 08/31/2011 - 13:10 | 1619330 gmrpeabody
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I believe you are correct, Doc. He really is talking about "crony", only he's a lot more polite than we are.

Wed, 08/31/2011 - 13:48 | 1619502 Buckaroo Banzai
Buckaroo Banzai's picture

You can call it crony capitalism, but frankly the system we have in place now is a lot closer to marxism than it is to capitalism. Capitalism died in 1913, but the body only started to rot in 1971... and it really only started to smell in 2008. So most people haven't even noticed. Our current economic failures are failures of marxism and socialism, not failures of capitalism.

Wed, 08/31/2011 - 13:53 | 1619539 Bearster
Bearster's picture

Capitalism is the system based on the absolute individual rights of life, liberty, and property.

Today, we have fascism: nominally private ownership under public control.  For example, look at today's news about AT&T.

The dishonest continually try to blame capitalism for the failures of fascism and socialism.

Wed, 08/31/2011 - 14:23 | 1619698 The Limerick King
The Limerick King's picture



You guys have been smokin' some weed

Some perspective you both sorely need

Our system is busted

As men can't be trusted

Once corrupted by power and greed

Wed, 08/31/2011 - 14:36 | 1619777 Caviar Emptor
Caviar Emptor's picture

There are other kinds of unfettered capitalists: drug lords, mafia gangs, robber barrons etc....that model died because it too was unsustainable 

Wed, 08/31/2011 - 15:32 | 1620056 sgt_doom
sgt_doom's picture

Outstanding and most appropriate points.

Of course, there are some highly suspect assumptions made in the overal blog post, which ignores the fact that in order to function, an economy MUST be a SYSTEM, not a criminal enterprise (and with any fiat economy, naturally, it is somewhat of a criminal enterprise, although if kept at an 8:1 ratio of money creation -- it at least functions at the "controlled greed" level)

With everything outgoing -- offshored production assets and offshored capital assets --- and bleeding the tax base in every manner possible, there is no attempt, even at the superficial level -- to even give the false appearance of any SYSTEM.

Anyone today who doesn't even understand the concept of "amortization" won't even begin to understand either Caviar Emptor's excellent comments, nor my own......

Wed, 08/31/2011 - 14:21 | 1619684 sun tzu
sun tzu's picture

The bankers made it legal for them to steal from us

Wed, 08/31/2011 - 12:56 | 1619291 TruthInSunshine
TruthInSunshine's picture

Case-Shiller reports that home prices are down in 20 major metro areas YoY.

The carnage begins in two months. November forward is going to be a bloodbath.

Stay liquid.

Wed, 08/31/2011 - 13:10 | 1619331 vast-dom
vast-dom's picture




Wed, 08/31/2011 - 13:51 | 1619528 Chump
Chump's picture

Sure, right, just like the bloodbath after QE2 expired.  Just like the bloodbath after QE1.  Just like August was supposed to be a bloodbath.  Just like QE3 was a definite (still lol'ing hard on that one Tyler).

I agree a bloodbath is coming, and that liquidity is key, but just shut the fuck up already with the right-after-this-we-all-die bullshit.  I'm responding to all such predictions, not singling you out.  Denninger is the chief screaming monkey right now, trying to predict individual days when the collapse starts.  Such epic stupidity.

Wed, 08/31/2011 - 12:57 | 1619294 SheepDog-One
SheepDog-One's picture


Wed, 08/31/2011 - 13:03 | 1619309 reader2010
reader2010's picture

The only way that's going to happen is to have the global scale world wars in the name of securing resources. 

Wed, 08/31/2011 - 13:57 | 1619560 DosZap
DosZap's picture

reader 2010,@13:03,

Dude, if thats the case we already lost.

China has already bought up all the natural resources and available farmland outside of the USA.

I THINK their nearing a deal on purchasing ALL Of Africa.

All that South African Dutch farmland that was so fertile and was seized is in their hands now.

Wed, 08/31/2011 - 14:23 | 1619696 sun tzu
sun tzu's picture

A contract means nothing without the ability to force everyone else to abide by it. 

Wed, 08/31/2011 - 13:03 | 1619310 Poofter Priest
Poofter Priest's picture a very good article.

Still have no idea what the fix is or where these histronic forces will drive us, but it is a very good article.

Wed, 08/31/2011 - 15:37 | 1620081 sgt_doom
sgt_doom's picture

"Still have no idea what the fix is.."

A good start is economic democracy --- which means the immediate outlawing of monopolization; land monopoly, capital monopoly, and knowledge monopoly.

That means that when a Getty, who recently died from alcoholism (lived in fear of getting kidnapped and getting another ear chopped off), is described as being born to enormous wealth -- that will never happen again, as those who previously stole to gain their fortunes, will no longer be born to incredible wealth and land, while those who add to society and actually create and produce, end up invariably penniless, and those the cycle continues in its perverse fasion....

Equality scares the sociopaths.....

Wed, 08/31/2011 - 13:04 | 1619314 Construct
Construct's picture

To call 'Globalization' capitalism and then say that capitalism has failed is nothing more then a brainfart. Rigged globalization HAS failed. Supply/Demand NEVER fails.

Wed, 08/31/2011 - 13:11 | 1619335 hedgeless_horseman
hedgeless_horseman's picture

Our fiat currencies are failing, as they always do.

Wed, 08/31/2011 - 13:12 | 1619339 reader2010
reader2010's picture

Globalization is a fancier term of global exploitation in terms of labor, resource, capital, and environment.  Its current format since the first day of the East India Company has been doomed since the day one. 

Wed, 08/31/2011 - 13:32 | 1619439 Construct
Construct's picture

To be honest I don't want to justify an economical discussion that has the viewpoint that 'Marx' was correct in anyway. Socialism/Communism has been utterly disproved. I want to stress the fact again that what has failed is Globalization and NOT Capitalism. Globalization was doomed and it is easy to see why. You move ALL the jobs from Europe/USA to China/India. So that corporations can increase profits while they export back the goods/services to the west that now is unemployed and must consume on credit. This Arb system has everything in common with socialism/communism and NOT capitalism. If you read Adam Smiths work 'Wealth of Nations' you will clearly understand that what we have had ever since the collapse of USSR has not been capitalism.

Wed, 08/31/2011 - 13:47 | 1619504 myne
myne's picture

Both systems are fundamentally flawed.

Capitalism unchecked, will rape every last resource and spare no thought for the welfare of the people or the environment. However it will deliver the most astonishing advances in technology and production.

Socialism offers no incentive to improve, but it cares for its people.

They're Yin and Yang. They need to be seen as such.

Together they work rather well to offset eachothers failings. This is why the fiscally responsible EU countries, Canada, Australia, etc do well.

Somehow, someone realised that neither system works. Someone must have realised that some sectors of our economies work best when governed under the principles of one of these systems with elements of the other to balance it out. We even have outright dictatorships thriving in our western countries. Our militaries are run under an almost fascist dictatorship because that's the system that works best for that sector. Our healthcare is generally socialist, but with capitalist accounting. Our businesses are capitalist, but with socialist regulations.

They're Yin and Yang and I pray that one day the majority of the world will wake up and realise that we cannot ever succeed under 'one true ideology'.

We need both.

Wed, 08/31/2011 - 13:57 | 1619543 Construct
Construct's picture

Every time you have a credit induced bubble with misalocated capital the invincible hand of capitalism and supply/demand will naturally cause a collapse or crisis in order to restore equilibrium. The fact that we have collapses following misacolation shows how truly beautiful the invincible hand of capitalism is. It cleans itself out. That is NOT a sign of failure but rather a sign of success.

Wed, 08/31/2011 - 14:08 | 1619611 myne
myne's picture

Indeed it does.

I'm not sure if you're debating what I said though. I didn't mention misallocation. I realise that capitalism automatically and systematically reallocates resources if they are misused, but it lacks morality.

Capitalism would cheerfully euthanise the elderly to cut costs. Thus while it motivates and drives efficiency, it lacks morality.

Socialism would reward everyone equally with every luxury regardless of effort. Thus while it seeks idealism, it lacks motivation or efficiency.

Wed, 08/31/2011 - 14:20 | 1619682 Construct
Construct's picture

Well if you are a moral person and you seek justice you can always donate time and money at the local church (I am not trying to be funny either) If you have an altruistic personality that is what you can do but reality rules supreme and capitalism has nothing to do with morality. I am a libertarian personally but I am realistic enough to understand that we need a more inclusive society hence I have nothing against watering down capitalism with a welfare system. They can go together hand in hand very well if done in the right way.

Wed, 08/31/2011 - 15:02 | 1619914 myne
myne's picture

Ours isn't too shabby. (Oz)

It got a bit out of hand with the last government's paradoxic policies. One the one hand giving welfare to working parents, on the other, pushing for a private healthcare system.

I hope that it swings back to what it was in the 90's. I like not having to stress about my health costs. Tax me. I don't care. Insurance does the same job, but with more layers of beurocracy, and the likelyhood that they will weasel out of their obligations.

Wed, 08/31/2011 - 16:05 | 1620270 Mark_BC
Mark_BC's picture

I agree with you myne, but I thought I might add to:

"This is why the fiscally responsible EU countries, Canada, Australia, etc do well."

That might be because they are the only western coutnries with significant amounts of natural resources left to plunder...

Thu, 09/01/2011 - 00:35 | 1621723 Kiwi Pete
Kiwi Pete's picture

Add New Zealand to that list. Plus our government actually repaid a lot of debt during the good times. Almost unheard of elsewhere by all accounts

Wed, 08/31/2011 - 16:08 | 1620291 Debugas
Debugas's picture

Canada and Australia do well because they are rich in natural resources

Wed, 08/31/2011 - 13:48 | 1619509 reader2010
reader2010's picture

One of the characteristics of capitalism is to privatize gains while socialize costs because of its extremely biased economic viewpoint and selfishness. Like anything else, capitalism also has its birth and death. In other words, captialism also goes through different life stages before its demise. 

Wed, 08/31/2011 - 13:51 | 1619527 Buckaroo Banzai
Buckaroo Banzai's picture

Wrong. The US economy, as it is currently constructed, isn't even vaguely capitalist, and hasn't been since 1913. Your assumptions are wrong, therefore your conclusion is wrong.

Wed, 08/31/2011 - 13:56 | 1619554 reader2010
reader2010's picture

The US version of the Fascism is another form of captialism, what Princeton Professor Sheldon Wolin calls Inverted totalitarianism.

Wed, 08/31/2011 - 13:52 | 1619535 myne
myne's picture

That's not a characteristic of capitalism. Capitalism would have let those banks fail.

Corporatism is the word you're looking for.

Wed, 08/31/2011 - 14:26 | 1619721 sun tzu
sun tzu's picture

Corporatism is fascism. The elites are too smart to put a dictator into power. He could easily be overthrown as many past dictators. They instead put in this facade of a republic/democracy to make us think that we are in control. There is a revolving door of crooked politicians while the beast (bureaucrazy) is in control. 

Wed, 08/31/2011 - 13:58 | 1619566 blunderdog
blunderdog's picture

"Globalization" was DOOMED?

Globalization is not some private agenda.  It is an ongoing phenomenon.  It is as inescapable as gravity.

Your beliefs are clearly irrelevant to what's true.

Wed, 08/31/2011 - 15:40 | 1620104 sgt_doom
sgt_doom's picture

"Socialism/Communism has been utterly disproved."

Curiously enough, the citizenry of Brunei, Norway, Sweden, and Denmark might not agree with you buckaroo!!!!

But then, you do appear to be "all-knowing"  --- just which Ivy League douchebagger school did you attend, anyway?

Thu, 09/01/2011 - 14:47 | 1623289 asparagui
asparagui's picture

Marx is two things: 1) his analysis of economic trends and 2) his arguments for solutions.

On the first part, he's actually far stronger than most of his critics give him credit for.

For the second, his ideal society runs into the same wall every other utopia eventually hits: perfect societies require perfect people.

And when dealing with imperfect people, there are two inevitable solutions: expulsion or the gulag (followed by the killing fields).


I agree with you that what we have is not really capitalism, but the same argument can be used to rationalize away pretty much anything: "stalin wasn't really a communist", "the crusades weren't really religious wars", etc.

Wed, 08/31/2011 - 14:06 | 1619605 Debugas
Debugas's picture

globalization here is used in the sense of "running out of outer sources of growth" and becoming a closed system

Wed, 08/31/2011 - 13:10 | 1619321 Kat
Kat's picture

Marx was a total idiot and he appeals to complete idiots.  He was far too stupid to understand that, for instance, labour is just one input in production.  There's not enough time in the world to dig through all of the Marxian moronic ramblings.

We currently suffer from a light version of what the Soviet Union sufferred from - too many idiots in central government screwing with things they have no hope of understanding. 

To inject a bit of spot on Hayek, we are suffering from the fatal conceit of the political class. 

Once you pervert the markets so that they are no longer markets, you have to keep tweeking your way to destruction in an effort to fix that which you screwed up in the first place.  Note that this is ALL that politicians do and they love it because it robs us of power over our lives and gives it to them.  Power is the ultimate wealth.

There is no crisis of capitalism.  There is a crisis because we don't have anything here or in Europe that even vaguely smells of capitalism.


Wed, 08/31/2011 - 13:14 | 1619351 reader2010
reader2010's picture

"Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism."  

- Karl Marx, (Das Kapital, 1867)

Wed, 08/31/2011 - 13:25 | 1619400 Bob
Bob's picture

Anther socialist conspiracy, I spoze.

Wed, 08/31/2011 - 18:12 | 1620807 MachoMan
MachoMan's picture

Why in the fuck is this donkey getting kudos for posting a fictitious quote?  This has been discredited repeatedly...  It shouldn't even pass the smell test: (a) because you should have read the book; and (b) because it seems a bit too prescient...

Wed, 08/31/2011 - 18:59 | 1620945 Bob
Bob's picture

Now that you mention it . . . way too prescient.  I did read the book, though about 35 years ago. 

Thanks for the knock upside the head!

Is the urban legend quote a communist plot, you think?

Wed, 08/31/2011 - 13:26 | 1619403 NotApplicable
NotApplicable's picture

In other words, you just need an organ like the Fed, and it is a self-fulfilling phrophecy.

Wed, 08/31/2011 - 13:32 | 1619444 Bob
Bob's picture

I'm beginning to think Marx gave the masses way too much credit.  Then again, he came way before McLuhan and Orwell. 

Wed, 08/31/2011 - 15:22 | 1619993 myne
myne's picture

Pretty sure it was the banks that did that...

Wed, 08/31/2011 - 15:43 | 1620124 sgt_doom
sgt_doom's picture

Marx and Engels never imagined Sigmund Freud's double-nephew, Edward Bernays.


Wed, 08/31/2011 - 14:10 | 1619621 ToddGak
ToddGak's picture

Pretty much nailed that one!

Wed, 08/31/2011 - 13:22 | 1619355 scratch_and_sniff
scratch_and_sniff's picture

yeah, i see you changed that...i think you are "fart" too stupid too. ahh Freud was outstanding in a field(until he got cold and had to come in again).

Wed, 08/31/2011 - 13:53 | 1619538 Buckaroo Banzai
Buckaroo Banzai's picture

Kat, I see that you have 10 junks-- did DailyKos and HuffPuff get out early today? Because those idiots seem to have found their way here.

Wed, 08/31/2011 - 14:00 | 1619578 blunderdog
blunderdog's picture

I didn't junk him, but if you're going to call Marx an idiot, you should've read him first.  Then you can explain WHY.

Wed, 08/31/2011 - 13:59 | 1619575 Mister Ponzi
Mister Ponzi's picture

Indeed, the Marxian flaws are numerous and fundamental. One is the notion - as you mentioned - that only the input factor "labor" can create value, though this notion was quite common already before Marx. If you look at the differences in output if 500 workers construct cars with their hands or with modern equipment in a car factory a few observers might note that the factor "capital" may also contribute to increased output. Another fatal flaw in his economic analysis was the idea that the market price of a good reflects its intrinsic value, while in fact it shows the supply demand dynamics at a particular time and therefore acts as an indicator what consumers demand and how resources are allocated efficiently.


There is a crisis because we don't have anything here or in Europe that even vaguely smells of capitalism.


Well, some Eastern European countries have elements "that vaguely smell of capitalism" but except for this you are quite right.

Wed, 08/31/2011 - 14:02 | 1619579 Paladin en passant
Paladin en passant's picture

Thank you.  Anyone starting off with anything close to quoting Marx is stuck in the 1800's.  It would be sad and funny if they weren't so dangerous.  (How many hundreds of millions of people did marxists kill in the last century?) Marx was thoroughly disproved in the 1930's.  Labor is fading away as a percent of the pie because we've moved on from the steam-based  order of things to the electronic and are in the early stages of the quantum-based society.  Get in the current century folks! You look like someone walking around in spats and tall hats talking about the wonders of steam engines with your naive marxist analyses of capitalist conspiricies.  The marxist religion is dead and useless.

Wed, 08/31/2011 - 13:08 | 1619322 alien-IQ
alien-IQ's picture

Do a public good deed: Bitch slap a banker every time you see one.

(bonus points for doing the same to a politician)

Wed, 08/31/2011 - 13:14 | 1619349 Kat
Kat's picture

Your anger, though justified, is misplaced.

That should be the other way around.  No banker can get himself a bailout or an SEC to protect him from competition without a politician. 

If a politician promised you free money, you would take it.  Thus, the bankers' (and other rent seekers') behaviour is perfectly understandable.  If government creates rents, they will be sought.

Slap down the politicians first.  They're the problem.  All other ills trickle from that putrid swamp.

Wed, 08/31/2011 - 15:45 | 1620132 sgt_doom
sgt_doom's picture

Kat's suggestion that the criminal co-conspirator is somehow even more guilty than the primary conspirator is truly nonsensical and magical (and psychopathic) thinking......

Wed, 08/31/2011 - 16:28 | 1620393 Bob Sacamano
Bob Sacamano's picture

Agreed.  While I am no fan of bankers, the only way government gets influenced by them or anyone else is because of politicians / government itself.  Government is the PRIMARY problem.  They do not have to bow to the wishes of banks -- they choose to do so.  This site blames bankers first and government second, when the primary fault lies with government.  If government officials were not corruptible.........

Wed, 08/31/2011 - 13:10 | 1619324 Charley
Charley's picture

Trash... But, put forth in an the interesting form of the Perils of Pauline.

Wed, 08/31/2011 - 13:09 | 1619326 vast-dom
vast-dom's picture

Allow me to reduce all of this to a few simple points:


1. A system that has the inverse of progressive taxation is not sustainable nor is it ethical. If Buffet pays a penny less than 40%, suspect write-offs notwithstanding, then the system is broken.

2. If derivatives to the Nth degree as par the financial course, then we are doomed. CDS's and other financial trickery essentially seal the fate of markets.

3. When an essentially illegal institution such as Teh Fed creates it's very own illegal derivatives and uses illegal accounting to cover up their toxic assets which they should never have, by law, been able to acquire from failed private institutions, then we have a massive failure of markets and systems.

4. When unemployment is used to further manipulate markets rather than the markets settling into some kind of equilibrium, we have major structural and political failures. At that point why even bother accounting for unemployment whatsoever? Not to mention that the very definition of unemployment in and of itself exposes fraudulent nature of economical accounting and political posturing.

5. When majority of profits are derived from financial manipulation rather than actual production of tangible goods and services, then we are unsustainable. Of course, there is room for much profit off of sepculation and investement, but it must be balanced with means of production and fair compensation. We have today a perversion of markets and financial systems at the expense of the populace at large. And it is only getting worse.












Wed, 08/31/2011 - 13:13 | 1619344 alien-IQ
alien-IQ's picture


Wed, 08/31/2011 - 13:24 | 1619370 vast-dom
vast-dom's picture



Allow me to reduce all of this to a few simple points:


1. A system that has the inverse of progressive taxation is not sustainable nor is it ethical. If Buffet pays a penny less than 40%, suspect write-offs notwithstanding, then the system is broken.

2. If derivatives to the Nth degree as par the financial course, then we are doomed. CDS's to the Nth and other financial trickery to the Nth essentially only seal the fate of these our failed markets.

3. When an essentially illegal institution such as Teh Fed creates it's very own illegal derivatives and uses illegal accounting to cover up their toxic assets which they should never have, by law, been able to acquire from failed private institutions, then what we have are massive failed markets and systems (ie rewarding gross failure by illegaly taxing and redistributing said illegal tax monies).

4. When unemployment is used to further manipulate markets rather than the markets settling into some kind of equilibrium, we have major structural and political failures. At that point why even bother accounting for unemployment whatsoever (except to further manipulate of course)? Not to mention that the very definition of unemployment in and of itself exposes fraudulent nature of economical accounting and political posturing.

5. When majority of profits are derived from financial manipulation rather than actual production of tangible goods and services, then we are unsustainable. Of course, there is room for much profit off of speculation and investement, but it must be balanced with means of production and fair compensation. We have today a perversion of markets and financial systems at the expense of the populace at large. And it is only getting worse.


Just because "teh government" says it is legal, all while subverting the constituion, don't make it so. Just because "teh government" says it is illegal don't make it so. 












Wed, 08/31/2011 - 15:48 | 1620145 sgt_doom
sgt_doom's picture

vast-dom nails it all perfectly, nothing more need be said......

Wed, 08/31/2011 - 13:13 | 1619333 Mr. Magniloquent
Mr. Magniloquent's picture

By "Advanced Capitalism" do they actually mean Corporate Facism aka: National Socialism? Then yes, it has failed...again. Let's abolish The State so that we can return to the late 19th/early 20th century prosperity and freedom.

Wed, 08/31/2011 - 13:28 | 1619365 Larry Darrell
Larry Darrell's picture

Followers of Marx are usually too fucking stupid to realize there is a difference. 

To the consumers of that brand of Kool-aid, all of the world's problems are the fault of capitalism.

Wed, 08/31/2011 - 13:42 | 1619490 Spastica Rex
Spastica Rex's picture

Party like it's 1929.

Wed, 08/31/2011 - 13:54 | 1619545 Bob
Bob's picture

And steeply downhill from there. 

Wed, 08/31/2011 - 13:11 | 1619336 Capt. Ray
Capt. Ray's picture

"taxing the super-wealthy at the same rate we self-employed pay (40% basic Federal rate), though that would certainly be a fair and just step in the right direction."


As far as I can tell everyone around me is scrambling for cash.

You are dead wrong by thinking that putting money from the owners of .gov into the pockets of .gov will help.


Look, labor in the current con-models are seen as cost. Production is seen as cost. 


However: Sweat equity is non-fiat!

Wed, 08/31/2011 - 13:12 | 1619343 scattergood
scattergood's picture

Schumpater I think has a better model on why capitalism will die out:

Schumpeter and capitalism's demise

Schumpeter's most popular book in English is probably Capitalism, Socialism and Democracy. This book opens with a treatment of Karl Marx. While he is sympathetic to Marx's theory that capitalism will collapse and will be replaced by socialism, Schumpeter concludes that this will not come about in the way Marx predicted. To describe it he borrowed the phrase "creative destruction", and made it famous by using it to describe a process in which the old ways of doing things are endogenously destroyed and replaced by new ways.

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for restrictions upon entrepreneurship that will burden and destroy the capitalist structure, but also emphasizes non-political, evolutionary processes in society where "liberal capitalism" was evolving into democratic socialism because of the growth of workers' self-management, industrial democracy and regulatory institutions.[12] Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong. One of the great advantages of capitalism, he argues, is that as compared with pre-capitalist periods, when education was a privilege of the few, more and more people acquire (higher) education. The availability of fulfilling work is however limited and this, coupled with the experience of unemployment, produces discontent. The intellectual class is then able to organize protest and develop critical ideas.

Schumpater is not advocating like Marx, just analyzing.  His is a great read given what's going on today.

Wed, 08/31/2011 - 13:58 | 1619569 Buckaroo Banzai
Buckaroo Banzai's picture

You can't take Schumpeter seriously, precisely because he took Marx seriously.

Marx was a satanic shitbag whose ideas have caused hundreds of millions of deaths. Anybody who fails to treat Marx as the psychotic piece of shit that he was, is at best delusional, and at worst, also a sick and violent psychopath.

Wed, 08/31/2011 - 15:09 | 1619944 Spastica Rex
Spastica Rex's picture

Medication is appropriate, under certain circumstances.

Wed, 08/31/2011 - 15:23 | 1619999 Buckaroo Banzai
Buckaroo Banzai's picture

Sonofabitch. Where did the infestation of Marxists around here come from?

Marxists...they are a filthy people.

Wed, 08/31/2011 - 15:36 | 1620073 Spastica Rex
Spastica Rex's picture

You know who else was a Marxist? YOUR MOM!

Wed, 08/31/2011 - 15:42 | 1620111 Keenism
Keenism's picture

Well thank goodness that Newton was not demonized or Einstein would have been just a really smart patent clerk.  

Wed, 08/31/2011 - 14:18 | 1619661 Debugas
Debugas's picture

now imagine a world where technological progress takes us to the limit - everything is produced by robots, robots and planet's resources belong to the few capitalists and they decide how much of what they want to produce. The rest of the population ("have-nots") is irrelevant and starves to death.

Imagine Bob and Alice living on an island and Bob controling all the fertile land whereas Alice only the rocky part. No matter how much money you give to Alice she will spend all of it to buy food from Bob and if Bob decides not to grow food for two but just for himself the Alice is going to die off

Wed, 08/31/2011 - 16:11 | 1620296 maximin thrax
maximin thrax's picture

Alice would have unlimited rocks to throw at Bob. And Alice could knock a few rocks together for sparks to burn Bob's crops, given she has no interest in them if Bob doesn't give her any food from them.

There has to be an interest by the Alices of the world to let the Bobs prosper. That interest is redistribution of wealth, and government is there to assist in exchange for Alices' votes. That makes Bob a slave to Alice because she lives off his work. Unless Bob quits and Alice has to tend the fields. But that would be suicide for Bob, so Bob keeps on.

One day Bob will die. Alice will have his land but will not know how to grow anything, so will die also.

When I was a teen I started thinking about what will come of an economy where ever-fewer people needed to work to produce the same amount of goods and services, courtesy of ever-more efficient production. We have our answer: increased efficiency leads to the pulling forward of future production to fill those empty hours. People will work to obtain and spend credit. They will work for ever-larger homes and more expensive vacations. They will work, and borrow, for eating out every other day.

We have less than 60% of working-age adults actually working. Of those, a huge amount are government workers who produce, dare I say, nothing, though some (like firemen) protect existing investments. Of those not working for government, a significant number work to secure credit for us to buy things that we can't actually afford.

So, given how so few adults are actually productive in the classical sense, but all need to eat and have 4-bedroom homes, no wonder we have to take the production of other nations, like China, to get everything we need. In return, we hand out IOU's.

Now we're committed to hyper-consumption in order that the economic activity come to pass that will produce the revenue to pay off those debts. Which is like the man who said he loses money on each sale but makes it up in volume.

Wed, 08/31/2011 - 13:13 | 1619348 casey13
casey13's picture

If what you think we have had in the developed countries for the last 100 years is capitalism then there is little hope for the future. The Government has since 1913 had a monopoly on the money supply. This alone means that they can distort the economic system at will and thru inflation over time confiscate most of the wealth produced by the rest of us. If we live in a capitalist society then why is government so large and intrusive?

Wed, 08/31/2011 - 13:20 | 1619380 slaughterer
slaughterer's picture

If this article omitted the reference to Marx, it would be accepted without dispute by most economic research centers.   

Wed, 08/31/2011 - 13:28 | 1619414 NotApplicable
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Keynesian ones, perhaps. Austrian, never.

Wed, 08/31/2011 - 15:17 | 1619965 Mountainview
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Austrian sound good but are untested in practice. Marx was perverted by Lenin and Stalin. With Keyesians and Friedmanians we are still have our troubles in real life....

It's time for something new! Who will show up first?

Thu, 09/01/2011 - 00:59 | 1621761 slewie the pi-rat
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who will first show are those who are able to perceive something real, even if some consider that real to be "untested in practice" like austrian econom...

...or the Consitution of The United States of America

the answers you seek in looking for something "new" out there will only be discovered by "you" when you create something "new" in here (within yourself, since you probably won't be able to understand what i mean if i don't just spell it out for you, no matter how devoted, passive, "listening for the right sound" and pious you are about waiting for something "new" out there)

Wed, 08/31/2011 - 13:15 | 1619356 mrkolice
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trippy, the west is discovering marx
Wed, 08/31/2011 - 13:18 | 1619366 amc2828
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I think the better argument is that Socialism is failing. The governments cannot afford the entitlements anymore and that debt is what is causing the economic difficulties. 


Thu, 09/01/2011 - 12:20 | 1622899 GoinFawr
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You wish:

Scandinavia is quite the onion in your ointment, no?

Wed, 08/31/2011 - 13:19 | 1619375 nikku
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"Advanced Capitalism?" If you mean capitalism that is centrally planned, lobbiest and politician corrupted, over-regulated and over-taxed with too much government for individual freedom, then I object to the term "Advanced Capitalism." How about a fucked-up and trashed remainder of what was once the great American constitution.

I founded a company that paid a total of over $50 million in compensation to its employees. Sold in 2004 due to Chicago corruption for a tenth of its value. I am on strike as an entrepreneur. I won't waste another 20 years of my life and my remaining financial means to have Obama's lawyer friends and other crooks take it all away.

You want to know why we have fewer jobs? It's not due to technology, idiots. It's due to the discouragement of the entrepreneurial spirit.

Atlas is shrugging and it's because of socialism and central planning (barely) hidden in our "capitalism." Second passport? Check.

Wed, 08/31/2011 - 13:33 | 1619442 rosiescenario
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"You want to know why we have fewer jobs? It's not due to technology, idiots. It's due to the discouragement of the entrepreneurial spirit."


....and Chicago has no monopoly on this.....I have been involved with starting around 20 different companies over 40 years in Kalifornia. You would need to be certifiable to start a new company in our bureaucratic nightmare state today. We have created an engine in Sacramneto, staffed with anti business geniuses from our university system whose sole purpose is to insure that a new company is not started. You think the Federal regulations are onerous, well Kalifornia puts on another layer of parasites and they are very much anti-business. The state's current budget problem is the quite obvious culmination of these bureacrats work over the past decade.

Wed, 08/31/2011 - 13:34 | 1619449 RSloane
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So now they can sit back and enjoy the fruits of their labor which is - there is no labor.

Wed, 08/31/2011 - 13:32 | 1619443 RSloane
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Wed, 08/31/2011 - 16:31 | 1620410 maximin thrax
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Advanced Capitalism: Counting the production of debt as GDP. For True Capitalism, it's helpful to have capital. Capital comes from savings, which comes from profits that comes wealth production, like turning sticks into bats and sheet metal into washing machines. Without capital, you have to borrow at interest, so to make a profit there has to be a reasonable spread between profit and the cost of borrowing the capital. Investment, through the cost of borrowing (interest) being tied to a finite amount of available capital, is therefore more likely to be productive.

Advanced capitalism is simply the central bank making infinite, cheap money available for both blowing up bubbles and filling ballance sheet holes when said bubbles burst. The miniscule amount of real cash savings left is chased out of the banks for lack of interest income and/or lost through a bubble collapse.

Some people have all their "savings" tied up in their homes and their Social Security. They put real cash into those things and have lost everything. Even those who put cash into their 401k's have faced repeated losses, as their money gets caught up in malinvestment after malinvestment. However, if all credit evaporated and all savers had their cash in hand, even ol' cotton fiat, they would be rich beyond their dreams against the resulting deflation.

People go on endlessly about how gold and silver are suppressed due to multiple times the paper claims on them, but doesn't the same apply to the good ol' FRN? How many times has the same dollar been spent on Chinese goods, borrowed by the federal government, spent back to China, borrowed again, spent to China again, etc? If the multiple IOU's generated by the circulating of that dollar can't be repaid, they won't, and the real winner will be the entity holding that dollar when the music stops.

Wed, 08/31/2011 - 13:20 | 1619376 Stuck on Zero
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He believes that technology produces poverty because it reduces the labor component.  He forgets that the other side of the coin is that the technology also reduces the price of manufactured goods.  Productivity should produce wealth.  Law, management, medicine, government, banksters, never improve productivity but they draw greater and greater income because they have subordinated government to their own interests.

The developed world is "unlearning" the lessons taught by Henry Ford.  Pay your workers enough to purchase what they are producing and wealth will come to all.   Charles Hugh Smith is way to linear in his thinking. 

Wed, 08/31/2011 - 14:23 | 1619699 Debugas
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the technology also reduces the price of manufactured goods


Alas not to zero because we live on a planet with limited resources which cost something exactly because they are limited. The root cause of the crisis is uneven distribution of wealth

Wed, 08/31/2011 - 14:52 | 1619851 cartonero
cartonero's picture

Um, lets think a little bit outside the box you're in. Technology reduces the cost of manufacturing goods, not the price at which they are sold. That is determined by the producer/seller. If there is no competition, or competition is controlled, the price could not drop at all, increasing profits. Take it from there ...

Wed, 08/31/2011 - 13:23 | 1619384 tony bonn
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many interesting points are made in the article.....cabalistic capitalism with its central planning has triumphed and no doubt labor has declined relative to capital....however, i am not sure that i accept the tenor of the article for this reason: it fails to account for the capital destruction wrought by cabalistic capitalism - a process which began in earnest in the 1970s with the advent of pure fiat currencies....a low interest rate regime has destroyed capital and emaciated capital has contributed to labor destruction....also, the high cost of debt - i.e. the pervasiveness of debt and its foundation of money have spread a cancer in the wage and capital funds which causes capital emaciaton....

antal fekete has made some interesting remarks about the wage fund which i believe are pertinent to this discussion....michael hudson has also made pertinent comments on this subject....the capitalism we have in fact is not the capitalism we think we have in theory....

nonetheless i do agree that we have a profoundly sick economy led by profoundly sick people...

Wed, 08/31/2011 - 13:35 | 1619454 NotApplicable
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Yep, not only are we eating the seed corn, but banksters are pissing in what's left to make sure we can't use it to sustain ourselves. Fekete's theory of Social Circulating Captial and the wage fund it supports are spot on.

Wed, 08/31/2011 - 13:25 | 1619402 kahunabear
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History shows that empires, civilizations, and companies rise and fall regardless of their roots or approach. Cycles are inevitable. We are born, we grow, we prosper sometimes, we age and we die. It is the tagline line in Zero's blog!

Wed, 08/31/2011 - 13:29 | 1619418 cainhoy
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amazing how many people are so critical of marx when they've never read a word he wrote. parroting the opinions of the marx-o-phobics is not original thought. hysterical how any reference to marx in this so-called country brings out the know-nothing, knee-jerk responses of the the tail gunner joes out there. mr. smith, you are truly prescient of the storm to come. thank you.

Wed, 08/31/2011 - 13:48 | 1619514 fearsomepirate
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I have.  Marx was a fucking ignoramus.  He didn't even understand how retailers add value to products because he was so obsessed with the labor theory of value.

Wed, 08/31/2011 - 14:01 | 1619581 Buckaroo Banzai
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You are a fucking idiot.

Wed, 08/31/2011 - 16:07 | 1620287 Spastica Rex
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Your mom is a fucking idiot.

Wed, 08/31/2011 - 14:14 | 1619640 Dr. Acula
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>amazing how many people are so critical of marx when they've never read a word he wrote

Amazing how anyone gives two shits about Marx when he was thoroughly refuted by Ludwig von Mises 80 years ago

Amazing how anyone gives two shits about Keynes when he was thoroughly refuted by Henry Hazlitt 50 years ago


Wed, 08/31/2011 - 13:29 | 1619420 RealitiveMind
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This is too complicated . . . can someone please just tell me if I should buy one iPad or two?

Wed, 08/31/2011 - 16:06 | 1620279 Spastica Rex
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Two. Definitely.

Wed, 08/31/2011 - 13:30 | 1619425 reader2010
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QUOTE:  “When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.” – Frédéric Bastiat

Wed, 08/31/2011 - 13:30 | 1619428 NotApplicable
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This is by far the most ignorant article I've ever seen from Charles Hugh Smith. To think, he doesn't even know what capitalism is.


Wed, 08/31/2011 - 13:30 | 1619429 JohnG
JohnG's picture

..."(using Jeremy Rifkin's excellent phrase) as "the end of work."  "


This is a book worth reading.

Wed, 08/31/2011 - 13:36 | 1619462 greek 83
greek 83's picture

Capitalism's last effort to buy time was by throwing in the global labour force the people of the former socialist states and other far east countries.The east would produce and the west would consume thanks to a massive debt and other assets boom.


The point was to overcome the main antithesis that was described.Companies and their owner,at an individual basis,want to push the labour costs down.At the same time they must find a market for their products.However the buyers are the producers,hence the antithesis.


As i said this was overcome by letting the west labour class be the buyers and make the far east labour class the producers.Thus they produced cheap and they sold much higher.Of course this whole trick would come to an end.What we have now is a crisis of overproduction,there are produced much more products than those that can be bought(yet at the same time biliions dont'have even foods).Crisis in the financial sector or the housing bubble in various countries are just the symptoms of a deeper crisis.Most western economies (or large components of them)are pyramide like in nature.Booms and debt were needed so that the system could live,but it woudl need a bigger bubble everytime.Still at at the basis the problem was and still is that profits gained by the invested capital are not favourable in the west(high wages etc).Hence the whole outsourcing thing.The bubbles following that are just to keep the game going.


Historically the way to overcome such crisis is wars and destruction of enemy capital(enemy meaning different states as well as competitors within the country) so that the whole cycle can begin with the survivors.Of course  the great majority of people can only expect deat,poverty and misery

Wed, 08/31/2011 - 13:38 | 1619468 rosiescenario
rosiescenario's picture

If your multi national corporation cannot move the work to some third world country, then they have the government relax the immigration rules and bring the third worlders here. One of the prime reasons unemployment is at Depression era levels, thanks to our bought and paid for government.



Wed, 08/31/2011 - 13:39 | 1619477 lasvegaspersona
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For the best repudiation of Marx I (as a non-expert) have read check out FOFOA's piece (master): Debtors and Savers...Marx just got it wrong...

Wed, 08/31/2011 - 14:24 | 1619706 Mark_BC
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I disagree with FOFOA's characterization of the classes as savers versus debtors, as opposed to rich vs. poor. I think the class distinction should be recognized for what it really is: those who work for their money, vs. those who have their money work for them. Those who have their money work for them do nothing good for society, they suck their wealth via usury, which was illegal over much of human history, because the obvious direct implication is that the rich get richer and the poor get poorer. The only way to offset this problem is through heavy taxation fo the wealthy, or by growing the economy so that new wealth can be created fore the people who "work for their money". SInce our elites have decided that they don't want high taxes for themselves, they are trying to grow the economy. Of course we have hit real world limits to economic growht now.

Ban usury, ban interest on money, and really, in an economy that is no longer growing, we could even ban banking too. It was only accepted because it provided a way to extend credit to European economies that were rapidly growing as they conquered the world. There is now no planet left to conquer so we no longer need growth and therefore it's questionable whether we even need credit. In that case, with interest illegal again, then everyone would be part of the "work for their money" class.

Wed, 08/31/2011 - 14:34 | 1619763 Debugas
Debugas's picture

we simply need a non-violent mechanism to redistribute wealth (capital as in productive capacity producing something useful) so that it is more or less uniformely distributed (for example taxing the richest to finance little guys willing to start-up a small company ???)

Wed, 08/31/2011 - 19:23 | 1621000 technovelist
technovelist's picture

Um, "non-violent" and "taxing" are contradictory.

Hope that helps.

Wed, 08/31/2011 - 15:20 | 1619980 lasvegaspersona
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You will be fighting against most of the world. Even Rick Perry will love his fiat as he repays his home loan in gradually inflating currency. The concept of class does not distingush us as much as our behaviors when we are borrowing...or when we are saving. I think FOFOA's observations are correct.

Sun, 09/04/2011 - 09:37 | 1631213 e-recep
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Interest on money cannot be banned or abolished. It is mathematically impossible.

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