Debt Deflation and Crisis

When analyzing debt and economic growth, usually only government debts are examined. They are seen as a corollary to economic crises, devaluation of currencies, and government defaults -- and while I'm not going to dispute or discuss these claims here in this post, perhaps on a later day, I will say that they are misleading trends of analyses in relation to the current financial crisis. There is another 'kind' of debt that is up for discussion and more pertinent to the crisis of 2007 -- credit market debt, which consists of domestic non-financial sectors (household debt, business/corporate debt, and government debt) and domestic financial sector debt.

This explosion of credit began around the time of the institution of 'Reaganomics,' where individuals took to lending and spending over saving despite stagnant wages. 

 

A more detailed look of the trend since 2002, with its peak. The shaded area depicts the length of the recession.

 

However, the above graphs show the total credit market debt. Broken down, household (consumer) credit debt depicts the same trend.

What does all this mean? Fundamentally, this means that the expansive economic growth of the previous three decades were on shaky footing to begin with, likely leading to the global economic collapse that followed. The impact of the credit boom since the 1980s is described in an article by the research institute Center for American Progress (CAP) by Christian E. Weller. He writes:

"The debt is highest among the middle class. Middle-income families before the crisis had a debt-to-income ratio of 155.4 percent in 2007, the last year for which data are available, for families with incomes between $62,000 and $100,000, which constituted the fourth quintile of income in our nation in 2007. This ratio is higher than for any other income group. Families in the top 20 percent of income (with incomes above $100,000) had a ratio of debt to income of 123.6 percent, and families in the third quintile (with incomes between $39,100 and $62,000) owed 130.7 percent of their income. Households in the bottom 40 percent of the income distribution (with incomes below $39,100 in 2007) owed well below 100 percent of their income."

Shocking as it is, this is the not the first time such a credit upsurge occurred. There was a similar phenomenon that occurred before the Great Depression of the 30s. Samuel Brittan, in his review of Richard Duncan's 'The New Depression: The Breakdown of the Paper Money Economy,' writes:

"It is certainly striking how both the 1929 Wall Street crash and the 2007-08 financial crisis were preceded by a huge credit explosion. Credit market debt as proportion of US gross domestic product jumped from about 160 per cent in the mid-1920s to 260 per cent in 1929-30. It then fell sharply in the 1930s to its original position. Later it surged ahead in two upswings after 1980 to reach 350 per cent of GDP in 2008."

The corresponding graphic, using the analysis by Jeffrey Gundlach, Chief Investment Officer from TCW:

This analysis of crises in relation to credit market debt is attributed to economist Irving Fisher, and his ideas were largely ignored in favor of mainstream Keynesian view of economic crises, which argued that they were caused by an insufficiency of aggregate demand. Since the recent economic crash of 2007, Fisher's ideas have enjoyed a resurgence in economic thought. His theory on debt deflation has been of significant fascination in the heterodox Post-Keynesian school of economics, and is now beginning to enter the mainstream. Economist Paul Krugman discusses Fisher's ideas in one of his posts on his blog "Conscious of a Liberal" in the NY Times -- below is the graphic taken from the article (with added information).      

                         

Since the total credit market debt owed has been stagnant since late 2009, reaching its 'peak,' and if GDP steadily keeps rising, it is likely that debt deflation will occur all the same as it did during the Great Depression. However, the issue of private debt and its hindrance on the consumer is still an issue -- and if spending is ever to increase significantly, the issue of wages and consumer debt must be addressed.
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- An analysis of the total credit market debt by Crestmont Research. 

Zizek's Old Joke

The joke, as Zizek tells it, goes along these lines: 

A man is convinced he is a grain of seed. He is quickly taken to a mental institution where the doctor eventually convinces him that he not a grain of seed; he is a man. He is then supposedly cured and is permitted to leave the hospital. However, once he steps outside, he immediately rushes back in trembling with fear. "There is a chicken outside," the man says "and he is going to eat me." The doctor tells him, "Come now, you know very well you not a grain of seed, but a man." "You and I surely know that," the man tells him, "but does the chicken know?" 

This just tells us the nature of psychoanalytic study -- it not enough to convince the truth to the patient, but one must also be convinced that others assume that same truth. It is this struggle of truths that encapsulates the psychiatric field, which attempts to normalize individuals who have accepted a reality different than that of one's peers. 

Plato's Allegory of the Cave and Modernity

In the beginning of book VII of Plato's Republic, Socrates begins to describe his most famous story -- the allegory of the cave. 

"And now, I said, let me show in a figure how far our nature is enlightened or unenlightened: Behold! Human beings living in an underground den, which has a mouth open toward the light and reaching all along the den; here they have been from their childhood and have their legs and necks chains so that they cannot move, and can only see before them, being prevented by the chains from turning round their heads. Above and behind them a fire is blazing at a distance, and between the fire and the prisoners there is a raised way and you will see, if you look, a low wall built along the way, like the screen which marionette-players have in front of them, over which they show puppets" [514]. 

An illustration would aid in understanding Socrates' scenario, with shadows being created on the wall the prisoners are facing. 

"To them, I said, the truth would be literally nothing but the shadows of the images" [515c].  

To Socrates, this is the dark aura of the unenlightened persons -- living in the mere shadows of reality and lacking any movement beyond the state of mind that was molded of them. Unable to move their heads, the prisoners are unaware of the real mechanisms that guide their lives, instead they resort to the reflections as an understanding rather than being able to comprehend the reasons behind these reflections. So what occurs when the prisoners are released from their shackles, and forced to see the light? Socrates explains.

"And now look again, and see waht will naturally follow if the prisoners are released and disabused of their error. At first, when any of them is liberated and  compelled suddenly to stand up and turn his neck round and walk and look toward the light, he will suffer sharp pains; the glare will distress him, and he will be unable to see the realities of which in his former state he had seen the shadows; and then conceive someone saying to him, that what he saw before was an illusion, but that now, when he is approaching nearer to being and his eye is turned toward more real existence, he has a clearer vision -- what will be his reply? And you may further imagine that his instructor is pointing to the objects as they pass and requiring him to name them -- will he not be perplexed? Will he not fancy that the shadows which he formerly saw are truer than the objects which are now shown to him?" [515d] 

"...and if he is compelled to look straight at the light, will he not have a pain in his eyes which will make him turn away to take refuge in the objects of vision which he can see, and which he will conceive to be in reality clearer than the things which are now becoming shown to him?" [515e]

Socrates here makes a crucial point, and it is this aspect of his telling that is the most relevant. Although the individual has been freed of the prison he was once kept in, he still yearns to go back to the comfortable reality of ignorance (the shadows). The newly-awakened sense of consciousness is suppressed, and replaced with comfortable thoughts; those that coincide with the reality the individual once took as 'real.'

Socrates, with this simply allegory, describes a phenomena that is common and persistent in modern social groups and cultural mores. He also describes psychological attributes which are a common theme in psychiatric studies, which have ramifications far beyond individual enlightenment. In Freudian terms, such mechanisms can be described as one of the major defense characteristics of the mediating ego -- outright simple denial, in this case. Being one of the more primitive of the mental defenses, such a reaction is knee-jerk one which lacks any rationalization when initially done. It is done to purely derive pleasure (i.e relieving anxiety and restoring one's comfort zone), and, lacking any justification, it falls into the trap of succumbing to the id, the instinctual drives that seeks to maximize pleasure. It is unresponsive to one's real positioning in reality, which is shown when the freed individual in the cave rejects what is true. 

Now, the basic question -- what does this all this Freudian lingo translate to and what are its implications? In modern society, especially in the Western world, we are bombarded with information more so than any other period in history. With such immense amounts of information, one must, consciously or not, form a concrete methodology of understanding; choosing out of this immensity, what one wishes to engage in. Much of this "choosing" occurs unconsciously; we are driven towards our ideology, at least to the unaware, towards what is fed to us. The media cultivates our perceived normality, reinforces our social positioning, and ferments in us certain desires. This is what I would presume Socrates would call "the cave" -- be it through reality TV, or creating a character of ourselves on social networking, these all create reflections that we perceive as integral to our consciousness. The shadows themselves are manifested in viewing our personal taste as authentic, but they are merely constructs of social mediums (i.e the puppeteers). Submitting to the id, certain such mediums tap into our pleasure principle -- creating desires and indulgences, or as Marx would call it, the fetishism of the commodity.

There is a twist to Socrates' tale, however. There is no need for such a 'bringer of light' that shows the prisoner the enlightenment. Knowledge in the Information Age is not suppressed, rather it is steadily subdued and structurally ignored. The knowledge of the internet is in the open, ready to be accessed, however social mechanisms and cultural norms that have been created over the years have created such a culture where information is paradoxically restricted. Be it in the political sphere, in literature, or any other -- structures within our own system facilitates "the cave" while subduing the enlightenment Socrates' pushes. Alienating to an insatiable degree, it bears resembles to one of the eerie mottoes of The Party in George Orwell's book 1984; IGNORANCE IS STRENGTH. It grants strength to the structures that dominate our consciousness, and consequently empowers the overseers of our individualistic demise.

The Compatibility of Freud and Marx

At first, the marriage of Freud and Marx in academia seems a bit out of place. It initially seems to be a senseless attempt to encapsulate two different fields of study, and to place them in similar spheres would be to diminish their individual professionalism and importance. Despite being distinct areas of interest, they do share parallels that should be properly analyzed and discussed cohesively.

Sigmund Freud is seen as the founder of psychoanalysis, and more generally, of modern psychology. Responsible for uncovering and studying the unconscious mind, Freud brought to light certain mechanisms which drive individuals, that are absent from one's natural cognition. Understandably so, this discovery had a profound impact on our supposed potentiality and actions -- the idea of mental workings beyond our individual awareness, driving our instinctual assumptions and activities, was a grave revelation. Likewise, much of it was repressed and met with harsh criticism when first introduced. The idea of an "unconscious" agent of action was seen as obscene and dehumanizing to individualist pursuits. One's idealized desires were now being undermined as simply being partial products of unconscious mechanisms, that were outside an individual's control or presumptive awareness. It was a frightening for most to even consider. 

Marxism takes a similar approach in its analysis. Marx too was responsible for uncovering social mechanisms that have escaped the supposed reality of societies, but were always present and crucial to functioning. He theorized all societies engage in a creation of surplus value and its successive allocation. Who allocates this surplus is a question that is answered by the organization and structure of the particular society, albeit unknowingly to those within it. In feudalism, such allocation was done by the lords in distributing the surplus created by the serfs. In slavery, it was the slaveholders. In modernity, it is allocated by 'capitalists' -- or under the corporate model, by a board of directors. Like Freud, Marx brings forth the uncomfortable truth that has escaped the collective consciousness (rather than the individual). He discusses a social apparatus that has always existed, but has been absent from the mentality of the community. Similar to Frued's analysis of the ramifications of the unconsciousness on human behavior and conditioning, the allocation of the surplus is responsible for cultivating and molding the community culture, its cherished beliefs, and its wants. Once again, similar to Freud, we see workings that have been absent from human awareness, but have been crucial in its development. And just as Freud's developments, they have been suppressed all the same, and for similar reasons, although you could argue analyses of the unconscious have become relatively mainstream.

This is where the main similarity lies, which validates the merging the two fields for respective questions that require it. Such an approach is practiced by the likes of philosopher Slavoj Zizek, who adheres more to Lacan's methodology, and psychologist Wilhelm Reich, who analyzed class relations through a Freudian lens. Personally, I see much of Freudian psychology to be lacking and being too speculative where it should be substantiated. The works of Jacques Lacan and Carl Jung are perhaps more compatible with Marxian thought, especially Jung's work on the collective unconsciousness, however Freud's analysis still has its uses despite its recurring limitations.

A Brief History of Privatization in Croatia

A month or so ago, Anton posted a piece which detailed the economic history of Yugoslavia (you can find that here). This is the second half to the same paper, which I collaborated with him. This portion focuses on Croatia's post-independence transition to capitalism and explores the efforts of privatization undertaken by the its government after the collapse of Yugoslavia. This is a topic which fascinates me, so I may potentially post more research in the future.

I. Post-Independence Recovery and Privatization

After Croatia declared independence in 1991, it would have to begin to deal with the burgeoning economic troubles at hand. The war which broke out as a result of Croatia declaring independence took its toll on the economy, which was in dire straits when Franjo Tuđman was elected president. Tuđman’s presidency would serve as the herald for economic views which now play a large role in the modern Croatian government; privatization and globalization. However, the maladministration of privatization would join a long list of causes of economic problems including damage to infrastructure caused by the war, the refugee population, and disturbance of macroeconomic relationships. Croatia had to overcome two major Yugoslavian legacies in order to properly de-nationalize the country’s economy. Self-management and social ownership were the foundations of Yugoslavian socialism [Franičević 6]. Although dismantling the socialist state was not a popular opinion in the late 1980s, early legislation arose, outlining privatization measures with the goal of benefitting Croatian workers. These initial premises of privatization legitimized the institution in terms of popular opinion. As far as the workers were concerned, “they were the real ‘owners’ of the firm[s]… the obtaining of widespread support for privatization among the working class was regarded as an essential element in its successful implementation” [Franičević 7]. What most Croatians failed to realize, however, was that President Tuđman’s Croatian Democratic Union was the single-party entity which made the system possible. In order to begin to renovate the economy, the Law on the Transformation of Socially Owned Enterprises was enacted. There were two stages to this approach; the first was the transformation of social ownership into private or state ownership, the second was the complete privatization of said state ownership [Franičević 9].

Several of the procedures of the first stage proved to be relatively successful, by the end of 1996 the public debt had been reduced by over 1.8 billion Deutsche Marks [Franičević 12]. However, major difficulties arose with the privatization process, which drew criticism since the process was nontransparent, power was concentrated in a single ruling party, nepotism was prevalent, and blatant corruption plagued the system. The privatization model was constructed in anticipation of foreign capital. This would have been the ultimate goal of the two-phase process; initially, previously nationalized industry would be sold to the private sector and the state, and if all had gone as planned, international corporations would buy into Croatia’s industries. Unfortunately, the corruption of Tuđman’s government made Croatia’s economy extremely volatile, and not one which foreign investors would so readily invest in. Nevertheless, privatization continued throughout the 1990’s until Tuđman’s death in 1999. Its institution wreaked havoc on the Croatian economy, and it was a testament to the dangerous power of uncontrolled state capitalism. Croatian privatization contrasted similar processes in other European nations at the time. A majority of Croatia’s capital was due to the hotel industry, however, throughout the 1990’s, the tourism industry shrunk as a result of violence in the early part of the decade, and economic decline in the latter half. Another difference was due to Tuđman’s strict nationalist control. Because of Croatia’s strong nationalist sentiments, they began to distance themselves from the Balkan states and became ambitious in wanting to be seen as a “Western State”. Tuđman was able to take advantage of this cultural Westernization and apply it to the economic policies of his administration. Whereas privatization by definition should result in less state control, Tuđman’s presidency virtually resulted in quite the opposite. He relied on the state, rather than the private sector of the economy, in order to globalize the country’s economy; however, it was an exercise in futility due to corruption, scandals, and the buying out of Croatia’s capital and industries.

II. Growth in the New Millennium

In spite of the tragedy and controversy that surrounded Tuđman and the Croatian Democratic Union’s privatization scheme, the economy began to take a turn for the better in 2000. With the Croatian Democratic Union defeated in the 2000 elections, structural reforms under Prime Minister Ivica Račan were finally possible. For the three years he was in power, he continued privatization by opening up the economy to the West, which helped to restart Croatia’s GDP growth. Račan also began programs to improve infrastructure, which was essential in assisting the rejuvenation of tourism. After nearly being destroyed in the 1990’s, the industry has steadily increased since 2000, with the inflow of capital further funding infrastructure. Inflation remained stable as well, with the Croatian Kuna maintaining stability with the Euro. Overall, the expansion of the economy was due to said infrastructure programs, Westernization of the markets and tourism, as well as the growth of smaller private corporations. In the nine years from 1999 to 2008, GDP increased by around 4.25% per year.

Croatia’s growth in GDP in the 2000’s was an excellent sign of improvement for the country’s economy; however it failed to match the growth in Yugoslavia in the 50’s, 60’s, and early 70’s. Although Croatia remains one of the wealthiest of the former Yugoslav republics, the damage caused by the economic collapse of the 1990’s and subsequent economic policies have left impacts on Croatia on both micro and macroeconomic levels. The unemployment rate in 2011 was 17.9%, with a comparable 18% of Croatians living below the poverty line as of 2009. Even during the dusk of Socialist Yugoslavia, the unemployment rate was lower, at 15%. Although life expectancy and literacy rate have risen to 76 and over 99% respectively, provinces like Krajina are particularly devastated by unemployment. In addition, Croatia’s domestic economy is in need of repair, as it relies far too much on imports and its export sector is minimal.

During a meeting with the U.S. Ambassador to Croatia in February of 2010, Minister of Economy Duro Popijac summarized the major issues which the nation faces. First is the privatization of shipyards. During Yugoslav socialism, shipbuilding was one of the largest economic sectors, and the Croatian government is currently having difficulty selling the shipyards. Until they are bought, the government must continue to pay to keep them open, which is something the European Union does not permit. Croatia’s candidacy for the EU affects its economy in a big way, as it is doing almost all that it can to meet the Union’s requirements. Minister Popijac highlighted a three-part economic bailout fund, which would include a subsidized loan scheme, government guarantee fund, and the creation of a private equity fund. A majority of Croatia’s microeconomic problems stem from the ineffectualness of government intervention in the private sector, as well as ongoing corruption. All of these, in turn create macroeconomic issues, as they make Croatia an increasingly unstable investment opportunity.

III. The Current Dilemma & What the Future Holds

The transformation from Yugoslav socialism to modern Croatian capitalism has stretched over half a century. There were a myriad of changes from one extreme to another; the hasty implementation of privatization is perhaps to blame for Croatia’s current economic troubles. This increased Croatia’s interdependence with other European nations after the Yugoslav Civil Wars, rather than fostering its own industrial-based economy. Furthermore, additional privatization has essentially become the only way out of Croatia’s economic dilemma in their eyes, despite it being what caused the economy to become so unstable. The ultimate root of Croatia’s economic problems, however, is cultural. The current policies are not working, yet there is hardly any opposition. Croatia yearns to further westernize themselves and their economy, to the point where their extreme nationalism is beginning to hinder progress and harm them. The nation is taken by the allure of pure capitalism, further fueled by their desire to join the EU, and there is no tolerance or consideration for any other economic viewpoints. Although Croatia’s economy appears to be relatively growing, successful measures need to be taken to address their high foreign debt, weak industrial export sector, crumbling bureaucracy, and large reliance on tourism. Until those issues are addressed in a more open minded way, Croatia will never be free of its economic dependency on stronger powers.

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-Ballinger, Pamela. "Selling Croatia or Selling Out Croatia?" Bowdoin College, 24 Oct. 2003. Web.

-Franičević, Vojmir. "Privatization in Croatia: Legacies and Context". Eastern European Economics, Vol. 37, No. 2 (Mar.-Apr., 1999), pp 5-54

-Government of the Republic of Croatia - Information on Croatian Economy 

http://www.vlada.hr/en/about_croatia/information/croatian_economy 

The American Phenomenon

In 1893, Frederick Jackson Turner presented his landmark essay "The Significance of the Frontier in American History" to a gathering of academics at the World's Columbian Exposition. Turner, in his thesis, argued that the unique American frontier experience shaped the United States' development and created a distinct culture and political condition. In essence, the frontier was responsible for molding the American character into what it is. 

While his thesis certainly stands true, the "Old West" also brought with it an economic anomaly -- a differentiating aspect that made the United States' economic upbringing particularly strange. From its colonial origins and throughout the 1800s, the U.S economy was consistently plagued with shortages of labor. These shortages would influence the development of slavery in the South, where plantation owners find it necessary to import more slaves to sustain their agricultural output. These shortages would also be the reason for the influx of immigrants throughout the 1800s, from which stemmed the extreme prejudice from nativists once some forms of unemployment actually became evident.

The above graph depicts estimates made by the Bureau of Labor Statistics. However, they are relatively high due to the impossibility of knowing the actual levels of unemployment. Little surveying was done, regional statistics were not kept, and much of the American population was self-employed. This makes assessing the unemployment rate during this period of exceptional American growth difficult. And further complications arise when youth employment is added into the calculations --  which customarily started the from age of 10 in most areas. Since not all households required their children to work, making fully accurate estimates is nearly impossible. 

However, given the growth of American industry during the 1800s, basic assumptions can be made. For one, the inventiveness of the U.S industrial economy can be properly explained if the labor shortages are taken into account. Because of the lack of labor in the United States, industrial capitalists had to rely on new technology to be able to increase their output and balance the lack of laborers. From this predicament, the American System of Manufacturing, as it was called, was developed. Because of its efficiency, it was revered amongst industrialists in Europe. The most important contribution being -- the creation of interchangeable parts. This allowed industry to drastically increase their output and keep costs to a minimum. This also coincided with the high degree of mechanization that was starting to take root in the United States with the beginnings of the first Industrial Revolution.

Much of this technological advancement was also a product of the contention between agricultural and industrial regions during the United States' great economic expansion. Although these clashing interests date far back to colonial times, the creation of the General Land Office  in 1812 was a turning point. This independent federal agency was responsible for distributing and surveying public domain land in the largely unexplored territories of the United States. Two laws in particular addresses the rationing of these lands -- the Preemption Act of 1841 and the Homestead Act. The former was passed to ration pieces of the uncultivated territory at a price. Up to 160 acres could be purchased at a time, and at very low prices. It was done to encourage those already occupying federal lands to purchase them. The Homestead Act, first enacted in 1862, was similar in its intent. Its aim was giving applicants roughly 160 acres of land free of charge west of the Mississippi River. Now, northern industrialists not only had to deal with labor shortages -- they also had to satisfy their workers enough so they would not opportunistically leave and go westward. 

The frontier experience did much more than cultivate the unexplored land westward; it intensified the shortages of labor in the United States. This scarcity created an inventive industrial sector that had to compensate by developing new technology, which would ultimately lead the United States to the economic dominance it enjoys today. Economist Richard Wolff, in a few of his lectures and writings, theorizes that it was this remarkable condition that created a very different experience for those living in the United States.

"What distinguishes the United States from almost every other capitalist experiment is that from 1820 to 1970, as best we can tell from the statistics we have, the amount of money an average worker earned kept rising decade after decade. This is measured in “real wages,” which means the money you earn compared to the prices you have to pay. That’s remarkable. There’s probably no other capitalist system that has delivered to its working class that kind of 150-year history. It produced in the U.S. the expectation that every generation would live better than the one before it, that if you worked hard, you could deliver a higher standard of living to your kids."

Frankly, Wolff's analysis makes sense. Rising wages kept the worker class's morale high, and attracted immigrants -- it also served as an incentive for working people to stay as laborers rather than receive land and move westward.  So, fundamentally speaking, American employers experienced competition in the labor market for two specific reasons. One, the federal land programs provided incentives for workers to move westward and entrepreneurs had to provide reasons for them to stay and work in the form of higher wages. And second, since the labor supply was constantly in high demand, workers were not easily replaceable. This implicitly forced firms to increase their wages, to attract laborers to their respective industries. 

In 2006, Michael Lind published an article in the Financial Times titled "A Labour Shortage Can be a Blessing," which indirectly supports Wolff's thesis on wages. He writes: 

"In the ageing nations of the first world, the benefits of a labour shortage, in the form of higher productivity growth and higher wages, might outweigh the costs. Where labour is scarce and expensive, businesses have an incentive to invest in labour-saving technology, which boosts productivity growth by enabling fewer workers to produce more. It is no accident that the industrial revolution began in countries where workers were relatively few and had legal rights, rather than in serf societies where people were cheaper than machines."

In order to validate Lind's and Wolff's claims, two specific economic topics must be properly historically analyzed. The first one being -- is there evidence for such a labor shortage, and if so, how severe was it?

Given the estimates made by the Bureau of Labor Statistics, it would be safe to assume that unemployment was not a major issue during the 1800s. When youth employment is taken into consideration, the estimates become very inflated, since the labor pool was so large. However, beside macroeconomic analysis, there are specific scenarios which shows that such a dilemma in production was indeed persistent in the United States during the 19th century. The PBS television series "American Experience" gives one particular scenario during the construction of railroads in the 1860s that validates this assumption.

"In early 1865 the Central Pacific had work enough for 4,000 men. Yet contractor Charles Crocker barely managed to hold onto 800 laborers at any given time. Most of the early workers were Irish immigrants. Railroad work was hard, and management was chaotic, leading to a high attrition rate. The Central Pacific management puzzled over how it could attract and retain a work force up to the enormous task. In keeping with prejudices of the day, some Central Pacific officials believed that Irishmen were inclined to spend their wages on liquor, and that the Chinese were also unreliable. Yet, due to the critical shortage, Crocker suggested that reconsideration be given to hiring Chinese..."

Historian Rickie Lazzerini portrays a similar issue in Cincinnati, Ohio during the beginning of the 1800s. 

"...the busy industries created a constant and chronic labor shortage in Cincinnati during the first half of the 19th century. This labor shortage drew a stream of Irish and German immigrants who provided cheap labor for the growing industries."

The second question that must be asked is -- was there actually a persistent increase in wages during the 1800s? 

To properly answer this question is immensely complex, since such little data is available. However, there exists one specific academic paper on the subject that addresses this question and the one posed prior. In 1960, economist Stanley Lebergott authored a chapter addressing wages in 19th century United States in a full volume called "Trends in the American Economy in the Nineteenth Century" published by the Conference on Research in Income and Wealth. The chapter itself was titled "Wages Trends, 1800 - 1900." He writes:

"Associated with the enormous size of these establishments was the
need to draw employees from some distance away. Local labor supplies
were nowhere near adequate. One result was the black "slaver's wagon"
of New England tradition, recruiting labor for the mills. The other was
the distinctly higher wage rate paid by such mills in order to attract
labor from other towns and states. Humanitarian inclinations and the
requirements of labor supply went hand in hand. Thus while hundreds
of small plants in New York, in Maine, and in Rhode Island paid 30 to
33 cents a day to women and girls, the Lowell mills generally paid
50 cents" [451].

Regions that lacked adequate quantities of labor had to rely on larger wages to attract workers from afar. However, apart from the industrial north of the United States, farm wages also increased -- perhaps signifying a competitive rift between the agricultural sectors and the industrial ones. 

Professor Lebergott, later in his analysis, then provides the full wage computations that he was able to calculate given individual data and trends recorded by local media. He combined the data he acquired on a state by state basis, starting locally and then branching out to create a national average. Also note, the drop in wages between 1818 - 1830 he attributes to "the close of the Napoleonic Wars and the end of the non-importation agreement."

Based on economist Stanley Lebergott's analysis, Richard D. Wolff's assertions are validated; the United States, for the most part, did enjoy increasing real wages throughout the 19th century. Even more so, it goes further in proving Michael Lind's claim that shortages of labor can indeed cause wage increases and heighten technological innovation. It is very likely that the combined frontier experience and shortages in the production processes created a unique variant of capitalism that was unique to the United States. It gave American households the confidence that if they worked harder, they would earn a better living. It also gave to them the optimism that their children would enjoy a better standard of living.

This unprecedented century of growth and success also had often overlooked impact on the American psyche. Because of the inflated expectations, it instilled a unique mentality amongst working class Americans. As John Steinbeck put it, the poor don't see themselves as victims -- but rather as "temporarily-embarrassed millionaires." It is this aspect of the American psyche that has allowed the broken system to flourish in the decades since the persistent stagnation of wages of the 1970s. Admitting the issue is just to difficult, for some; if we believe enough, the American dream just might become real again, as it was for those traveling out West to find riches and fortunes. In retrospect, the sooner working class Americans awake from this fantasy, the sooner they will realize that times have changed -- and not in their favor.

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- A lecture where Wolff discusses the frontier experience and 19th century wage increases.

- Some statistics and fact on U.S economic growth during this time period.

- A decent article on this topic from the Wall Street Journal (you need a subscription to view it).

Aristotle and Markets

Writings on the different kinds of exchange can be traced back to Classical Antiquity. The Greeks were fascinated with markets, especially the ethical implications of such transactions, and soon began to formulate their  own opinions on the emerging markets in ancient Greece. Aristotle, especially, devoted some of his writing to understanding its complexity. He observed four types of exchanges in the developing market of Ancient Greece:

      1.     C --> C ; where C = commodity

Better known as bartering, Aristotle had little issue with this mechanism of exchange in the market. He found it to be the most "natural" out of all exchanges, but saw major drawbacks in its inability in dealing with surpluses and deficiencies properly. The reason for exchange, from Aristotle's understanding, was because an individual viewed the seller's surpluses as being of higher value than his or her own surpluses, thus creating a transaction of equal value. He based the need for exchange around the concept of "use value" or "true value," which a commodity holds if it is necessary for one's life, household, or even community. He equated value with necessity. Therefore, Aristotle's reasons for exchange can be seen as one of the early precursors the the subjective theory of value, since it acknowledges different use values for different households -- based on their respective surpluses.

     2.     C --> M --> C ; where M = Medium of exchange (i.e money) 

The most prevalent method of exchange today -- Aristotle was ambivalent to it. He found money to be necessary in establishing a common comparable measurement for all commodities in the market, however he also felt it facilitated the next two forms of exchange (3 & 4).  This particular transaction is very similar to barter in that the purpose of it is consumption. The use-value for each receiving end of the transaction is virtually the same, therefore the exchange is equal, with money serving as simply a means, rather than as an end. Important to note also, is that Aristotle did not see money as a representation of value or wealth; it was a representation of want by agreement. Keep this in mind, because this is the one of the foundations for his criticism of the next two transactions.   

The economy of Ancient Greece is useful to bear in mind when trying to understand Aristotle's  analysis of markets. The majority of the work in Ancient Greek society was done by slave labor, mostly agricultural work, and many of the commodities on the market were products of individual artisans. Therefore, the full value was realized in its exchange of another commodity because the artisan's sweat and work was fully accounted for in the transaction -- the artisan kept all of what he produced, including his surpluses, and traded it likewise for a commodity of relatively equal value. 

     3.    M --> C --> Mp ; where Mp = M prime or M + profit 

This mechanism of the market Aristotle found to be ethically problematic and abominable. He calls this retail trade and the issue, he felt, was that money served as a starting and end point of a transaction, rather than a medium of exchange. He also felt this violated the principle that market transactions should serve the needs of the household, rather than succumbing to endless exchanges to increase profit. Aristotle did not consider this to be true wealth because the end goal is a greater quantity of money; it is simply a representation of exchange value in moneyed form -- because it is purely qualitative, it lacks a limit, which was present in the first two kinds of market transactions. He believed there was no natural restrain on this form of transaction because the market exchange, in and of itself, was not entirely equal. In the first two methods of exchange, trade was limited to commodities that were produced by, presumably, individuals - therefore the starting point required an exertion of labor, and the transaction itself was virtually equal in its entirety. Because the starting point of this transaction, "M," lacks that necessary productive capacity and because the individual is acquiring more of the same item he started with there is fundamentally no restriction on how much profit can be acquired -- and the need to acquire more is intensified. Frankly, the major difference lies in that the first two transactions were to consume, this particular one is to accumulate. 

        4.      M --> Mp 

This market behavior is usually grouped with the third one shown, but Aristotle groups it differently because "C" is absent. He calls this usury, and the most unnatural of all market exchanges. He considered the reason for loans to be exploitative in that the giver of the loan was demanding higher returns than what was handed out -- abusing the situation of the receiver of the loan. 

Granted, there are issues with Aristotle's understanding of basic market functions. The fourth market mechanism, in particular, is lacking in analysis -- it fails to understand that that the interest payed back is a portion of the new productive potential that was created by that loan (i.e what it was put to use for, invested in, etc). Requesting a loan does not necessarily mean an individual is in distress, but since Aristotle was primary concerned with ethics, it is easy to see why he made that assumption.

Aristotle's fascination with ethics is also the driving reason he criticizes the moneyed interests driving the marketplace. His bare-boned economic analysis as an ethicist, albeit lacking in much empirical reasoning, does bring an important aspect of the market to light -- the market is amoral. This is crucial. It is precisely due to this amorality, and because the market lacks any moral mechanisms and requirements, that the market sometimes succumbs to moneyed excesses of the socially damaging kind. 

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Much of the information mentioned can be found in this article titled "Aristotle and Economics"

More information on Plato's and Aristotle's economic views can be found here.

Posters from the May 1968 Paris Uprising

The May 1968 protests in France were a substantial event in labor history. The event is known as being the largest general strike in history, involving some of the first wildcat strikes, and virtually bringing the entire French economy to a halt. It involved over 11 million workers, 22% of the population of France, and lasted for two weeks. Aside from the historical impact it had, it also created some beautiful artwork. The ones shown below are from the student uprisings in Paris. 

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Titles from left to right going downward: 

1. "The Beauty is in the Streets!"
2. "United Workers!"
3. "Capital"
4. "Be Young and Shut Up" 
5. "Peoples' University, Yes!"
6. "Light Wages, Heavy Tanks"

Pedagogy of the Oppressed (II) & Modern Education

Of any movement, of any change, education is vital. It is the beginnings of new ideas, and it must be given special attention to ensure it is doing its proper purpose. However, the initial question is, what is the purpose of education? What does it mean to be educated?

Today we are in an age where measure of achievement are standardized -- a "one size fits all" approach to teaching and assessments. Divergent thinking is disregarded, and replaced with single-solution scenarios that involve little thought outside the limitations that are given to the pupils in the classroom. It turns education into a chore rather than a passion.

Granted, there are many reasons for this, but its primary reasons lie in its creation during the age of the Enlightenment and the Industrial Revolution. Fundamentally speaking, although the Enlightenment was a beautiful period of intellectual growth, it corresponded with the industrialization of much of the, then, "modern world." Likewise, many of the concepts attributed to the industrial model were applied to education: standardization, divisions, and hierarchy. All of these functioned in the interests of industrialization, and in the image of it. Perhaps the most important externality that was brought the industrialized education, however, was a similar form of alienation. Specifically, the alienation of the pupil from the work he or she was creating in the classroom. It is this dilemma that cripples intuition and advancement, and rather makes students into pawns molded into a pre-manufactured consciousness. It is an impediment to growth. Even worse so, to think outside the realm of normal studies is downgraded and displeasing, because conformity and efficiency are key in an industrial model of practice.

Paulo Freire addresses these concerns in his masterwork "Pedagogy of the Oppressed," and attempts to properly describe the educational system and articulate its flaws. He starts by categorizing the teacher-student relationship in dialectic terms, with a lack of real struggle. 

"A careful analysis of the teacher-student relationship at any level, inside or outside the school, reveals its fundamentally narrative character. This relationship involves a narrating Subject (the teacher) and patient, listening objects (the students).... education is suffering from narration sickness" [52].

Most importantly though, is the lack of significance in the teaching itself. The dialogue is hollow, and consists of "alienating verbosity." It does little to motivate the students, and it furthermore categories them as objects ready to absorb what the instructor is telling them, without fruitful interaction; it teaches them little to nothing on the fluidity of history, making them cautious when witnessing change, and it does little to awaken the aspirations the pupils might have. The language lacks any transforming power, and learning becomes overly-mechanical rather than engaging. 

"The teacher talks about reality as if it were motionless, status, compartmentalized, and predictable. Or else he expounds on a topic completely alien to th existential experience of the students" [52].

It is based on these observations that Freire theorizes on what he calls "the banking concept of education." 

"Education thus becomes an act of depositing, in which the students are the depositories and the teacher is the depositor. Instead of communicating, the teacher issues communiqués and makes deposits which the students patiently receive, memorize, and repeat. This is the "banking" concept of education, in which the scope of action allowed to the students extends only as far as receiving, filing, and storing the deposits" [53]. 

Bearing this mind, education must first solve this crux before it can go any further. The teacher-student contradiction must be properly handled before a true libertarian education can take root, that would eliminate the ignorance and encompass true transformation and radical praxis. Freire than goes on to delve into this contradiction, and I feel the quote deserves to be posted in full: 

"The solution is not (nor can it be) found in the banking concept. On the contrary, banking education maintains and even stimulates the contradiction through the following attitudes and practices which mirror oppressive society as a whole.  

(a) the teacher teaches and the students are taught
(b) the teacher knows everything and the students know nothing
(c) the teachers thinks and the students are thought about
(d) the teacher talks and the students learn -- meekly
(e) the teacher disciplines and the students are disciplined
(f) the teacher chooses and enforces his choice, and the students comply
(g) the teacher acts and the students have the illusion of acting through the action of the teacher(h) the teacher chooses the program content, and the students (who were not consulted) adapt to it
(i) the teacher confuses the authority of knowledge with his or her own professional authority, which she and he sets in opposition to the freedom of the students.
(j) the teacher is the Subject of the learning process, while the pupils are mere objects" [54].

This is the major issue, and the contradiction between the teacher-student relationship. For the commoners, education does little to change the condition which oppresses them, rather it only changes the consciousness of the oppressed. This is why the need for a radical new pedagogy is paramount -- one that is free from the alienating aspects of industrialization, horizontal in its power structure, involving in its dialogue, and promoting of inquiry and understanding. In a proper educational setting, it is not only the student that learns; it is both the pupils and the teachers that intellectually grow. They expand on their knowledge through dialogue and conversation, thereby heightening their consciousness and crushing their once-held ignorance. This is the goal of radical education, of revolutionary pedagogy -- the humanization and realization of one's potential.

The American War Obsession

Since its creation, the United States has virtually been involved in perpetual war. Specifically speaking however, militarization has especially escalated, and remained high, since World War II. 

As of 2011, according to the Stockholm International Peace Research Institute, the United States accounts for 41% of the world's military spending -- spending roughly 711 billion dollars, accounting for roughly 5% of GDP. These statistics are troubling as is, but perhaps even more troubling is the stranglehold the military has on the American economy. Let's break down the facts, piece by piece. 

• More than one-third of all scientists and engineers are engaged in military related jobs [Sato, 8].

• Many industrial sectors are intertwined with military spending, the main two being aerospace and shipbuilding [Sato, 8].
• Shipbuilding is heavily dependent on militarization. In 2002, shipbuilding brought in 11 billion in profits -- only 3.8 billion of this was from commercial shipbuilding [SCA, 1]. 
• In total, based on 2001 data, the top 11 aerospace and defense corporations employ over 900,000 people [Sato, 9]. This number can only be assumed to have increased since the Afghanistan and Iraq wars. 
• War-profiteering is high, especially in the last decade. To name one, Halliburton's KBR, Inc. division profited $17.2 billion from the Iraq War during 2003-2006 alone. More information can be found here.   
• The arms trade in the United States is a multi-billion dollar industry. It accounts for roughly 39% of the total world market, ranking in 170 billion dollars from '03 to '10.
• The top sellers are ironically 5 permanent members of the UN security council; U.S, France, China, Russia, and the UK. The majority of the buyers are developing nations.
• Many U.S taxpayer subsidies go toward the arms trade as well. 

The United States is also a main supplier of foreign aid to other nations, especially military aid. As of 2010, much of it is allocated to Israel and Egypt.

• Israel was given 3.2 billion U.S dollars in 2010, while Egypt was given 1.6 billion. However, there is little consistency; West Bank/Gaze was given 69 million in aid and other Middle Eastern states are given upwards of 100s of millions of dollars to essentially "leave Israel alone." 
• Certain regions also are heavily funded. 3.3 billion U.S dollars were allocated, for example, to South and Central Asia, however that is minuscule to the total combined amount given to Egypt and Israel. 

Based on 2007 statistics

As percent of federal spending (2007)

The issue with looking at American military spending is that much of it is withheld and convoluted. When military space expenditures, veteran payments, foreign aid, and other military-related costs are added in, the total actual budget is much higher than what was mentioned earlier in this post -- surpassing 1 trillion U.S dollars. Moreover, the percentage of federal spending is also misleading if taken at face value; it also includes transfer payments, such as social security and medicare, which are self-financed and do not use income tax revenue. The actual military spending curve shown to the right takes this into consideration. Keeping this in mind, GDP and budget percentages soar to shocking levels.

Equally disheartening, though, is the effect this has had on poverty in the United States. There is a correlation, in recent years, to war spending and individuals living under the poverty threshold. 

Fundamentally, this all of this is a reason for concern. With the United slipping from the economic dominance it once had, will it be forced to resort to military bullying to stimulate its industrial sectors and to maintain its intentional prestige? Although high military spending has been a staple in American policy for decades, it has spiked in recent years -- and since the Cold War and the fall of the Soviet Union, the political machine is promoting it quite overtly since now it has little reason to hide. Frankly, using militarism to promote imperial ends must cease -- there is much blood on American hands, and fostering success through war is both inhumane and unsustainable. All great empires collapse by overreaching its boundaries, due to excessive military budgets and overly-ambitious expansionist interests. The United States is on the path to be doomed to a similar fate if this jingoistic culture persists.
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- Sato, Eiko. Culture of Peace: Rediscovery of Human Innate Potential and Capability for Peacefulness: Culture of Peace and Violence in the United States. Honolulu: University of Hawaii Library, 2005. Web.
- Shipbuilders Council of America. Economic Contribution of U.S Commercial Shipbuilding Industry. Washington D.C: , 2002. Web. 
- The actual military figures were acquired from an article titled "U.S Imperial Triangle and Military Spending" from the Monthly Review.
- The written manuscript of Martin Luther King Jr.'s speech titled "Why I am Opposed to the War in Vietnam."
- A relevant article that provides more insight: U.S Military Industrial Complex: Profiting from War

Regarding Human Nature

To those that constantly use the naturalistic fallacy and resort to faulty arguments of appealing to human nature:

"Poor human nature, what horrible crimes have been committed in thy name! Every fool, from king to policeman, from the flatheaded parson to the visionless dabbler in science, presumes to speak authoritatively of human nature. The greater the mental charlatan, the more definite his insistence on the wickedness and weaknesses of human nature. Yet, how can any one speak of it today, with every soul in a prison, with every heart fettered, wounded, and maimed? 

John Burroughs has stated that experimental study of animals in captivity is absolutely useless. Their character, their habits, their appetites undergo a complete transformation when torn from their soil in field and forest. With human nature caged in a narrow space, whipped daily into submission, how can we speak of its potentialities?" - Emma Goldman

A short post, but I'll leave it at that.