> First of all, Crafts still says that there was an enormous slowdown in
> growth. I was replying to Doug who questioned this. As a whole, after '65
> there was a huge slowdown in growth.
>
> Secondly, and this is where my opinion comes in, taking a decade or so ('95
> - '05) as an argument to refute a study of long-term dynamics (i.e. 50
> years) seems silly.
Okay, growth slowed "after 1965." It was rapid "before 1973." It was slow "before 1945." It was rapid "after 1995." All of these things are true. Which one is the long-term dynamic? (And by the way, the post-1995 US prod. growth rate still approximates that of the postwar boom even if you measure it up to Q1 2009. So that's 14 years and counting. The 1973-95 slowdown was 22 years.)
When there are genuine long-term economic trends, no one needs to argue about them. Everyone agrees that the price level has been on an upward trend for at least the past 100 years. Everyone agrees the labor force participation rate has been on an upward trend for probably 200 years. Everyone agrees international trade as a share of activity has been on an upward trend since 1945. Yet most people who study the economy look at the same productivity statistics as Brenner and don't detect any secular slowdown.
> Crafts seems to be arguing that the US rode the
> technology boom to raise productivity and thus were productive in a highly
> innovative way. My feeling is that if this is taken into account in the
> "Brenner dynamic" the effect would be that the US will sell new high-tech
> capital goods to various foreign markets which in turn will feed into the
> dynamic of overproduction.
Well, the US productivity boom is only partly based on IT manufacturing. It also comes from the use of IT by other industries. So, e.g., fewer bank tellers are needed now that there are ATM machines and online banking. That's a productivity improvement that gets diffused, rather than dissipated, by capital goods sales.
Secondly, you hit on a point in Brenner's model that has always remained murky to me. He may well have addressed it somewhere, I'm not saying he hasn't, but it's a point that puzzles me. He seems to ignore product innovation, product differentiation, and monopolistic competition - which are all related and all have a tendency to increase profit rates. This is a well understood finding from the economics of industrial organization.
The economic mechanism Brenner points to that generates the tendency toward overcapacity is the fact that manufacturers' capital is fixed and costly. Therefore, if too many new competitors enter the line, the older firms still have an incentive to continue operating (thus perpetuating the new, lower profit rate) rather than exiting (which would help restore profitability to the line).
Okay, let's say that happens. But why does the entry of new competitors drive down profit rates in the first place? Because in Brenner's model, the new competitors are assumed to be producing an *identical* product, or what economists call a perfect substitute. Yet since at least the 1930's economists have understood that firms act aggressively to combat this tendency by engaging in "product differentiation" (and product innovation). The idea is to create a new variety of the product, or even a brand new type of product, that renders it an *imperfect* substitute. This allows firms to charge a higher price and thus earn a higher profit rate.
Apparently the only type of technological innovation that Brenner allows for in his model is *process* innovation - the development of a new, cheaper method of making exactly the same product. He argues that process innovation only deepens the problem of overcapacity, by luring in new competitors who can make a higher profit for themselves while driving down the profit rate for everyone else. But he seems to completely ignore *product* innovation, which has the opposite effect - allowing a new competitor to earn a higher profit rate without exposing the already existing firms to direct competition.
From the point of view of a capitalist who is preparing to enter a *new* line of production - for a new product that's never existed before - the current rate of profit facing *existing* firms is completely irrelevant. His profit rate is certain to be as high as it can possibly be, because he will (at least initially) have *no* competitors.
From Wikipedia, if I may:
http://en.wikipedia.org/wiki/Product_differentiation
> In marketing, product differentiation (also known simply as
> "differentiation") is the process of distinguishing the differences of
> a product or offering from others, to make it more attractive to a
> particular target market. This involves differentiating it from
> competitors' products as well as ones own product offerings....
> ...In economics, successful product differentiation leads to
> monopolistic competition and is inconsistent with the conditions for
> perfect competition, which include the requirement that the products
> of competing firms should be perfect substitutes....
> ...Differentiation primarily impacts performance through reducing
> directness of competition: As the product becomes more different,
> categorization becomes more difficult and hence draws fewer
> comparisons with its competition. A successful product differentiation
> strategy will move your product from competing based primarily on
> price to competing on non-price factors (such as product
> characteristics, distribution strategy, or promotional variables).
Or, for the highbrows, see Chapter 7 (p. 133), "Markets For Differentiated Products," in this textbook, _Industrial Organization: Theory and Applications_: http://tinyurl.com/cws5aq
Unless Brenner deals with this issue (and, again, maybe he has), I think it poses a pretty serious problem for his basic argument.
SA