Charles Hugh Smith, who blogs at oftwominds.com, has some apt if discouraging Labor Day reading in a piece titled Labor’s Dwindling Share of the Economy and the Crisis of Advanced Capitalism.
I will cheat and lead with his conclusion:
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.
To make this case he steps through the four mechanisms that have served to stave off, temporarily, the contradictions of capitalism that came to the fore in the thirties. If this sounds like Marxism, it’s because it is.
Not sure how to keep true to this argument by excerpting and summarizing, so I will just be lazy and shovel a large, uninterrupted chunk into your lap, dear reader:
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.
So, some happy thoughts to ponder, not just for us, who might squeak through, but certainly for our children and theirs.
I’m not entirely sure what he means by “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.” Apparently, you’ll have to invest in Smith’s book to really understand…..
2 thoughts on “Work is dead. Happy Labor Day!”
* Charles Hugh Smith publishes Foreclosure Crisis Weekly *
Actually, he does no such thing! He posted a Parody last October using that name, but it was just that, a PARODY!
Barry Ritholtz also has made the same error on The Big Picture.
What Mr. Smith does do is BLOG, almost daily. His blog is called “OF TWO MINDS”.
He is a guy you should actually read every day – as he’s absolutely brilliant.
Thanks for the correction. Will definitely check out the blog.