THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Thursday, October 13, 2011

Halloween Horror Special VI: The Incredible Shrinking Economy

One of the better techno-horror classics of the 1950s was The Incredible Shrinking Man (1957). Strict attention was paid to special effects, which only fail to come up to par when a child actor portrays "Robert Carey" (Grant Williams), the shrinking man, briefly. (Tough call for the director; it was probably impossible to find a little person who looked enough like Williams to qualify for the role — this was no "Mini-me" schlock played for laughs. The subject is treated with far more sensitivity than you'd expect in a fifties' sci-fi flick.) The smallification is caused by a combination of exposure to an atomic cloud — a fifties favorite villain — and pesticide. The overall intelligence of the script and the acting earned the film a place on the National Film Registry in 2009 for being "culturally, historically or aesthetically" significant — probably "culturally."

The character's problem is that the doctors can't find an antidote, and even the treatment to halt the shrinking works only temporarily. This is just long enough to kick his psyche in the teeth and traumatize a woman who works in a circus sideshow with whom he has a platonic relationship and (ultimately) helps him accept the fact that he is still human despite his size. (Things are a little different in the novel; we're going by the film.)

You probably see where this is going.

While the magic of reported statistics and inflationary manipulation of the currency is causing the illusion of growth sufficient to classify the current situation as a "recovery" from a "recession," it's all done with "special effects" . . . only not as believable as those in The Incredible Shrinking Man. It doesn't strike the Powers-that-Be, for example, that while consumer spending is up, actual consumption is down.

What's the problem there? The demand for new capital — and thus new investment and new jobs — is derived from consumer demand. That's real consumption, not inflationary rises in prices that redistribute purchasing power.

Inflation gives the illusion that consumption is up. Even Keynes, however, admitted that, as a result of inflation, spending may go up, allowing producers to accumulate "forced savings," but actual per capita consumption goes down as a result of higher prices forcing consumers to cut back.

Increasing consumer credit can make up the difference for a while, as it usually has since the early 1960s when consumer credit card use became widespread. The problem is that the bill eventually falls due; it can't just be put off indefinitely. The rise in per capita non-mortgage consumer debt from approximately $8,000.00 in 2008 to $10,000.00 in 2011 tells us how the "recovery" is being funded.

The constant complaints about how "the corporations" and "Wall Street" are hoarding cash and not doing their civic and humanitarian duty by spending it and creating jobs are misplaced. Because the demand for new capital and thus new jobs derives from consumer demand — again, real consumption, not increases in consumption spending — "the corporations" would be fools to invest in new capital and create jobs producing more marketable goods and services when there is decreasing actual demand for what they are currently producing.

Instead, "the corporations" (actually, any sane business man, woman or child) hold back the money, figuring — correctly — that if consumption is declining, they'd only be throwing the money down a rat hole.

Of course, they could do the just thing and pay out the money to their shareholders as dividends, who (if acting rationally) would spend it on consumption. This would provide the increase in real consumption required to provide the incentive to invest in new capital and create jobs without redistribution or government subsidy. Instead, the corporations are shoveling money into the stock market, buying and selling long and short at a tremendous rate, fueling the wild swings we've almost become accustomed to . . . just as was the case in 1929.  (The difference, of course, was that in 1929 the situation was even more volatile due to the low margin requirement, but the end result will be the same, whether the money is coming from pure credit or existing accumulations.  It's all money, and it's all being used improperly.)

The problem there is that not enough people have an interest in having corporations pay dividends. Due to the slavery of past savings, most people do not own any appreciable amount of corporate equity, and thus have no reason to care whether or not owners get their just due, i.e., the fruits of ownership, also known as income and control.

Meanwhile, back at the ranch . . .

Right now the "global economy" is suffering from the illusion of recovery. Yes, consumer spending is up — but consumption is down. That's not a recovery, that's a contraction of an economy already on life support. Things are not getting better, they're getting worse in real terms.

But, the pundits say, corporations have amassed huge amounts of cash. As we noted, however, none of this cash is being put to its proper use — not job creation, but consumption that will increase consumer demand and thus the demand for capital . . . and thus create jobs. Using the cash to "create jobs" directly is simply a complicated form of redistribution. Such jobs cannot be sustained because they are not called into being by true demand for the creation of new wealth, only by diverting existing wealth from its proper use: consumption.

Don't divert existing cash into reinvestment to create unnecessary new investment — unnecessary, that is, from the perspective of lack of demand. Instead, spend the cash to create "new" effective demand, which increases the demand for new capital investment, and thus job creation naturally.

To ensure that as many jobs are created as the economy needs, make certain that all income from capital is spent on consumption, or on retiring existing debt — past consumption that hasn't been paid for. Finance all new capital out of future, not past savings. All income generated by the new capital can then be used first to repay the financing of the capital — a form of consumption, by the way — and then spent on more consumption.

The best way to do this, of course, is to ensure that as many people as possible own capital, and that will require a Capital Homestead Act at the earliest possible date, possibly 2012, the 150th anniversary of the original 1862 Homestead Act.

Otherwise, we can sit back and watch the incredible shrinking economy continue to get smaller and smaller until it finally disappears altogether.