[lbo-talk] Krugman

Rakesh Bhandari bhandari at berkeley.edu
Wed Dec 19 11:31:42 PST 2007



>Rakesh Bhandari wrote:
>
> >3. You seem to be saying that productivity gains are not so
> >impressive and widespread as to encourage a general upsurge in real
> >investment. But that's Jha's point, so don't understand where the
> >difference is.
> >
> >
>
>That's not what I was saying. Productivity improvements were
>concentrated in a few sectors, but that's exactly what you would expect
>from a boom. Every boom is focused on particular sectors. The point is
>that the upsurge in productivity was certainly not caused by eliminating
>low-productivity activities but rather by large and genuine productivity
>advances in major sectors of the economy.
>
>I'm not dogmatic on this point. It's quite possible the productivity
>surge is over, having ended in 2006. But it was certainly very real.
>Hardly propitious terrain for anyone arguing for the long-term
>stagnation of capitalism.
>
Seth

But Seth I am not arguing for long term stagnation but a unity of stagnation and aggression. And no catastrophist denies that there may be exceptional advance in a few sectors.

For there to be a real productivity surge there has to widespread benefit from the most dynamic sectors as Paul David argued in his dynamo/computer analogy.

Technical advance is embodied in capital goods but Doug has shown that net investment has been very anemic in this 'boom', powered by deficits and cheap capital. This is a puzzle for us because the profit and productivity numbers look strong. Doug points to rentier disgorgement of cash but Michael Perelman and I ask why they would do that if profits from new investment are really so strong as a result of rising productivity.

Perhaps for there to be new productivity rising investments old capacity will have to be retired, but the pseudo war is not leading to a lot of destruction or even use of capital. The government is not burying enough Treasury Bills. The stimuli lessen the motive to scrap. So Brenner's problem of excess capacity remains real.

So the stock of idle money capital grows and goes from bubble to hedge fund to bubble. The securing of outlets for real productive investment becomes all the more urgent and a continuing threat to world peace.

It's not that I don't understand what Gindin is saying. I said much the same thing about the relative resilience of the US economy in my criticisms of Giovanni Arrighi's vision of Asian ascent eight years ago on this very list.

But even the trade surplus in high tech goods has vanished,the US will not be able to use the reserve status of the dollar to export inflation forever. It does now seem that the US attempt for hegemonistic reconstruction of the world economy will be a bitter and violent failure. My eyes are on this, not simply stagnation.

Sure Goldman Sachs will make a bundle due undoubtedly to insiderinformation about how bad the sub prime mess was.

But what does that show?

Rakesh



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