The end of the post war boom

Written By: nickkelly - Date published: 7:56 am, January 11th, 2023 - 87 comments
Categories: Austerity, Brexit, capitalism, economy, Economy, Keynes, social democracy, socialism, uk politics, Unions, workers' rights - Tags: 4th labour government, Grenfell, hurricane katrina, karl marx, Keynesian economics, neo-liberalism, nick kelly, pike river, socialism, tendency of the rate of profit to fall

Originally published on Nick Kelly’s blog

Throughout my time being active in politics, people have discussed the rise of Neo-Liberalism and the free market that occurred throughout much of the world from the late 1970s onwards. Yet few seem to really understand the reasons for this significant shift in economic policy at that time, which continues to shape our society today.

Those less familiar with the works of Karl Marx may not be familiar with the concept of the tendency for the rate of profit to fall. One does not need to be a Marxist nor socialistically inclined to believe or understand this law of economics, which explains what has happened in the last half-century of economics. As Wikipedia explains:

The tendency of the rate of profit to fall (TRPF) is a hypothesis in the crisis theory of political economy, according to which the rate of profit—the ratio of the profit to the amount of invested capital—decreases over time. This hypothesis gained additional prominence from its discussion by Karl Marx in Chapter 13 of Capital, Volume III,^[1] but economists as diverse as Adam Smith,^[2]John Stuart Mill,^[3]David Ricardo^[4] and Stanley Jevons^[5] referred explicitly to the TRPF as an empirical phenomenon that demanded a further theoretical explanation, although they differed on the reasons why the TRPF should necessarily occur.^[6]

The above graph shows the strong level of growth in Western Europe, North America, and Japan between 1945 and 1970. The economic decline that followed would result in the new right revolution of the 1980s and 1990s.

To simplify this concept in explaining what happened in the late twentieth century we simply need to understand that in response to the 1930s depression many nations and particularly developed nations invested in infrastructure to stimulate their economies and create employment. This was followed shortly by the Second World War where investment in industry was required. Then after the war, the Marshall Plan rebuilt Europe, whilst similar investment and rebuilding occurred throughout the late 1940s. This period of investment in response to the depression and war created the post-war boom resulting in significant economic growth.

Keynesian economics whereby government policy and intervention in the economy and significant levels of government spending are required to stimulate the economy and prevent depressions. This theory dominated government policy in economically well-off nations from Great Depression until the mid-1970s, when the post-war boom came to an end. The thing Keynesian economics was meant to prevent happening, did happen. So in 1979, Margaret Thatcher came to power in the UK, and the following year Ronald Reagan in the US, and with them came a sea change in economic policies not just in their own countries but internationally.

The Neo-Liberal project essentially was to move away from state intervention and allow the invisible hand to do its dirty work. Privatisation of state infrastructure such as rail or power companies, reducing spending on public services and increased user pay charges, and generally reducing the size of the state to try and stimulate the private sector. Part of this also included reducing employment rights including laws protecting the right to collectively organise, ultimately resulting in reduced earnings for most people. As my series of blog posts about the trade union movement suggested, the job of those wishing to attack union rights was often made much easier by the fact that most union leaders and a poor understanding of economics or how to respond to the end of the post-war boom.

New Zealand was peculiar in its transition to Neo-Liberalism in that it was the Labour Government of 1984 to 1990 that first introduced and championed these right-wing economic policies. At the time the big political issue in New Zealand was the Nuclear Free movement which successfully stopped US Nuclear ships from visiting New Zealand. Whilst this was a worthy campaign, it is strange to think that a government selling off state assets (often for less than their market price) and putting thousands out of work managed to win support based on a Nuclear shipping policy when their economic decisions were hurting so many.

Neo-Liberalism and reducing the size and expenditure of the state were meant to stimulate the economy. For whatever short-term gains were made in the 1980s and 1990s, which generally only benefited the 1% wealthy elite, it soon became clear that the fundamental problems in the economy still remained. Unregulated or self-regulating markets resulted in terrible outcomes including the Pike River mining disaster in New Zealand, the Grenfell Tower fire in London, and the levee failures in New Orleans during Hurricane Katrina all from lack of regulation and investment by the Government.

The 2008 crash ended the widely held belief that the market could correct itself or that wealth would trickle down. This crisis was due to a lack of financial regulation and was then made much worse by those countries who insisted on implementing austerity measures to restore public finances, instead of making the economic situation worse. Neo-Liberalism now is discredited and few governments either on the left or right really have an appetite for the types of policies Thatcher and Reagan promoted 40 years ago. As I will discuss in another blog post on Liz Truss’s brief time as Prime Minister, attempts to follow such a path now generally end in disaster very quickly.

After the fall of the Eastern Block Communist/Marxism ideology has been largely discredited. The end of the post-war boom saw an end to Keynesian economics and a shift to Neo-Liberalism, which is now also largely discredited. In 2021 economic policy is largely populist and a weird mix of Keynsian/Keynesian-lite interventionism with a sprinkling of laissez-faire rhetoric. So far in the 21st century, Capitalism has lacked any serious rivalry from any other theory or system. But capitalism has also run out of ideas. This is not just an abstract notion as the political upheavals in recent years stem from people feeling let down and angry by an economy that has not delivered. Yet, there is no clear alternative to the status quo. People were shocked in 2016 when the UK voted for Brexit and the US voted for Donald Trump as President. The increasingly polarised and challenging political world we live in can be blamed on many different factors. But at its core, I believe much of the trouble is caused by the lack of economic policy ideas that can address some of the great challenges we face.

We can learn much from mid-20th century Keynesian economics, but we also need to understand the limits of this theory and what caused the shift away from them from the late 1970s. Whilst the Neo-Liberal experiment also failed, we should also understand that bureaucratic and cumbersome regulation must have a purpose, and whilst state investment in public services can have real benefits we must be clear about what these actually are when this money is spent. Whilst I subscribed to socialist ideas in the past, it is clear that attempts to implement such a system to date have all ended in failure. However, we can still take Marx’s economic analysis (if not subscribing fully to his proposed remedy), specifically what he had to say about the tendency of the rate of profit to fall. Before we decide whether the current economic system can be reformed or needs to be completely replaced, we first need to improve the general understanding of how our economic system works.

87 comments on “The end of the post war boom ”

Comments are now closed

Hunter Thompson II 1

11 January 2023 at 8:37 am

Good article. For too long, economic growth has been the politicians' drug of choice.

We need better understanding of how economic processes work and then decide what sort of economy we need.

IMO it's not just the economy – ultimately, climate change will dictate what happens.
Tony Veitch 2

11 January 2023 at 8:40 am

Neo-Liberalism now is discredited . .

But is it? The Act party subscribe to those neo-liberal ideas and will be the driving force behind a Natz government bereft of any ideas except benefitting the wealthy.

Liz Truss’s brief time as Prime Minister, attempts to follow such a path now generally end in disaster very quickly . . .

Yay, we have a lot of happy times to look forward to if Natz/Act become government!
- Nic the NZer 2.1
  
  11 January 2023 at 8:55 am
  
  It depends how you define neo-liberal of course, but… Arguably Chris Luxon's only economic policy position is, cuts to public sector spending (e.g. austerity). You don't get much more neo-liberal a policy than that.
  - Gosman 2.1.1
    
    11 January 2023 at 10:00 am
    
    Austerity is not necessarily a neo-liberal economic policy and in fact it can be accompanied by increased government spending.
    - Nic the NZer 2.1.1.1
      
      11 January 2023 at 7:08 pm
      
      Your quite right that there are some other economic theories which also promote austerity as a policy (as far as I can see its exclusively a poorly timed choice at best).
      
      And you seem already to have clinically refuted your contention at 5, that Truss was in fact Keynesian. I mean as you highlighted austerity can increase government spending. So well done you made a good point there and we can now agree Truss policy was just standard neo-liberal policy.
      
      We should also note the replacement budget was even more austere. Unfortunately better hidden and with some progressive broad tax cuts thrown in. This seems to have fooled some including at thedailyblog. But well only find out later how the UK gets through this bout, rather than attributing it to a particular finance ministers recent policies.
      - Gosman 2.1.1.1.1
        
        11 January 2023 at 10:50 pm
        
        Truss's policy was all about stimulating the economy not cutting back on spending. It was the opposite of Austerity. It was why the markets rejected it.
        
        Nic the NZer 2.1.1.1.1.1
        
        11 January 2023 at 11:21 pm
        
        Anyway putting aside the question of, if you can differentiate austerity from any other budget position anyway, it seems abundantly clear that Chris Luxon is all about the cuts to public spending and is certainly in favor of a good bout of austerity, and is clearly neo-liberal in his economic outlook.
        
        Also, if the markets rejected it, that seems to refute your contention that it was going to be an effective stimulus. That may have been the intent but since the budget was quickly rescinded we can't really assess how it would have worked except to say that the markets didn't think it was going to work.
        
        Gosman …
        
        12 January 2023 at 9:46 am
        
        Incorrect. Austerity is usually accompanied by increased taxes as well as cuts in TOTAL government spending. Neither Truss not Luxon advocated or are advocating for raising taxes and cutting total expenditure in any meaningful way. The most Luxon has committed to is cutting spending on items like the RNZ and TVNZ merger and the merging of the DHB's. That won't have a massively negative impact on people.
        
        Nic the NZer …
        
        12 January 2023 at 7:20 pm
        
        "Austerity is usually accompanied by increased taxes as well as cuts in TOTAL government spending."
        
        This seems to be contradicted by the austerity chancellor of the UK himself.
        
        https://www.reuters.com/article/uk-budget-statement-idUKLNE82K02A20120321
        
        I mean all your really demonstrating here is that you have no consistent criteria for defining the state of an economy. See, 2.1.1 vs your comment to which I replied, for example. While this may prove quite useful in winning an argument it doesn't imply good economic analysis, quite the opposite in fact.
        
        Nic the NZer …
        
        12 January 2023 at 8:12 pm
        
        And regarding Chris Luxons budget positions your quite wrong of course. Your confused by the present National Party media strategy, which is to have zero details about any actual policy position (and to quickly retract and reverse any policy for which you do provide the details – though I'm not sure that's the official media strategy or just demonstrates National having no ideas they can stand by).
        
        If there is one thing he has been quite consistent about its that cuts are necessary (cuts of something, anything he thinks could be cut in fact, unless the interviewer has the details of what that department actually does). So not really what cuts, but the general notion of cuts certainly. This is, as you agree, one form of neo-liberal economics though there are several. Another (adopted by Reagan) being the supply side excuses for giving tax breaks to the wealthy.
        
        You should also keep in mind that I think its a bit of a false comparison between Luxons National and Truss Tories. I think its relevant to describe that there are several variants of bad economics proffered by our prospective government, but I'm still expecting variant A, virtually everybody takes a pay cut and your supposed to say thankyou for that.
        
        Gosman …
        
        12 January 2023 at 9:48 am
        
        The markets rejected it because it was fiscally imprudent. If the tax cuts were accompanied by spending cuts then they would have been more accepting and you would have more of an argument that she followed neoliberal economics.
- Gosman 2.2
  
  11 January 2023 at 9:38 am
  
  Liz Truss's proposed set of policies were Keynesian not Neo-liberal. See my comment at 5 below
- MickeyBoyle 2.3
  
  12 January 2023 at 8:56 am
  
  ''The Act party subscribe to those neo-liberal ideas and will be the driving force behind a Natz government bereft of any ideas except benefitting the wealthy.''
  
  Don't be so naive to think that this current iteration of ''Labour'' isn't also bedded to neo-liberalism either, because they definitely are.
  
  The wealthy have done extremely well under Labour's reign.
mikesh 3

11 January 2023 at 9:05 am

I think it was Schumpeter who pointed out that if a market was profitable it would attract new entrants, and the added competition would put pressure on profits.
- SPC 3.1
  
  11 January 2023 at 9:38 am
  
  And the innovators who noted that they would dominate any market they created (patents/IP) and make windfall profits/real wealth – the new monopoly phase prior to anti-trust.
  - mikesh 3.1.1
    
    12 January 2023 at 9:34 am
    
    Monopolies need to be regulated, but they become monopolies usually because they require large amounts of capital, which makes it difficult for new firms to enter a market and compete against them. Also, they need a degree of market control to justify the investment of such large amounts of capital, as Galbraith pointed out in his book The New Industrial State. This seems to be a problem inherent in industrialization.
    - Gosman 3.1.1.1
      
      12 January 2023 at 9:50 am
      
      The issue then should be what can government do to encourage new entrants to get competition back in the market NOT how can the government regulate the monopolistic business. That is the neoliberal approach.
      - Stuart Munro 3.1.1.1.1
        
        12 January 2023 at 8:07 pm
        
        Meh – the market is to be cajoled to produce public goods? Why bother? Better to leave the market out of it – if they're too lazy – as they invariably seem to be.
SPC 4

11 January 2023 at 9:32 am

Government growth was possible with a growing boomer population/GDP.

Then emerged rising energy cost and awareness of constraints of scarcity (and environment pollution) on the growth model. This would reduce profits, so jobs went where labour and environment standards were lower. And the transfer would also diminish the strength of unions and allow greater share of revenues/profits to capital. Without effective tax on CG and wealth that would undermine government funding.

So they came up with the Laffer curve to imply we could get growth by reducing the size of government – in fact the private sector would seek to make guaranteed profit of contracts from a cash strapped government – the same way pay day lenders do. And once down that course government loses capacity to get things done.

The neo-liberals launched a global class war to keep capitalism profitable and few social democratic parties had the courage to resist the tide. They also established a security regime to keep an eye on critics and reduce them to conspiracy theory status.
Gosman 5

11 January 2023 at 9:37 am

Liz Truss did not put forward a neo-liberal set of policies. She in fact promoted a Keynesian solution. She wanted to cut taxes AND increase government spending. It was pretty much the Keynesian textbook approach to stimulating an economy that is moribund. The massive increased deficit that would have resulted led to the markets rejecting the policy by abandoning the Pound and leading to the yields on UK sovereign debt to leap.
- UncookedSelachimorpha 5.1
  
  11 January 2023 at 11:09 am
  
  Not sure tax cuts only for the wealthy, is textbook Keynesian. Presumably if you target tax cuts only there, you believe a dollar there gives better value than a dollar anywhere else…which I doubt is supported by evidence.
  
  And what new spending did she propose? All she proposed was not to cut spending, IIRC.
  - Gosman 5.1.1
    
    11 January 2023 at 12:01 pm
    
    Standard Keynesian economic theory doesn't specify how tax cuts should be targeted just that to counteract an economic downturn the government should both increase spending and cut taxes to stimulate demand and therefore flatten and reverse the dip in the economy. This is what Liz Truss was proposing to do before the markets forced her to ultimately resign.
  - lprent 5.1.2
    
    11 January 2023 at 1:24 pm
    
    Not sure tax cuts only for the wealthy, is textbook Keynesian.
    
    It isn't. That is a supply side economics, not a Keynesian approach.
    
    There is a pretty good analysis of the Truss economics approach that I just read.
    
    … Truss’s “bold economic plan” represent the latest.
    
    Her proposal (before it was dramatically ditched) to cut taxes for top income earners, stems from a belief that such moves will encourage innovation and investment. The theory is that the newly created wealth would then improve the lives of everyone else.
    
    But is there any evidence that such ideas and policies will work?
    
    Supply-side and trickle-down economics have indeed been tried before, notably by the US president (and Thatcher ally) Ronald Reagan. He promised “sound money, lower tax rates, and a vast curtailment of federal spending, welfare, and subsidies” in what he described as the “only recipe for sustained economic growth and social progress”.
    
    In political terms, Reagan’s policies could be described as successful for the Republican Party. He was re-elected in November 1984, and his vice-president, George H.W. Bush, became president in 1988. In terms of economic growth though, they were a failure.
    
    For while Reagan had promised to cut federal government spending, over two terms of office, he actually increased the United States’ historic national debt by 186%, from US$907 billion to US$2.6 trillion.
    
    And although the US economy did grow under his presidency by an annual average of 3.49%, this was a poorer performance than the that achieved by Roosevelt (9.3%), Kennedy (4.4%), Johnson (5.3%) or Clinton (3.9%).
    
    One of Reagan’s advisers, David Stockman, wrote a memoir setting out the demise of supply-side and trickle-down economics, and concluded that the “Reagan revolution” was “radical, imprudent, and arrogant”.
    
    He added that the policy failed because “the spending reductions needed to pay for the tax cuts had turned out to be even bigger and tougher than I had originally thought”. They would, he said, have required “a full-frontal assault on the American welfare state”.
    
    There is more, but that is the guts of it. There wasn't a return on the tax cuts in the Reagan years because the money that the wealthy were saved simply didn't funnel into anything productive.
    
    The cuts to infrastructural programs of "a vast curtailment of federal spending, welfare, and subsidies" simply reduced the flexibility and ability to grow because the easiest ones to do that to were the ones that directly affected the poorest or hit the programmes on investment that had the longest economic effects. For instance the reason why transport systems in the US are falling apart now was because the federal spending on transport were cut by Reagan and were never increased to cover that deficit ever since. That has a major cost to the whole economy.
    
    Truss compounded the problem by effectively saying that she wasn't even going to try to curb spending. As someone pointed out earlier, she wasn't going to increase or even divert spending to higher productivity long term use. Effectively she was just wishing that tax-cuts to the already affluent would magically raise economic growth.
    
    That wasn't Keynesian because the core of Keynes economic approach was to strategically identify areas that were constraining economic growth and diverting resources from less productive spending to those areas. New spending was also pushed into the areas that allowed the potential for the greatest longer term economic growth. Effectively Keynes strategically favoured long-term growth by building whatever was constraining the economy.
    
    That was why support for children, education, housing, power and transport usually got large boosts in any economy that followed Keynesian principles. Wasteful spending like subsidies like tax or pension breaks for middle to high incomes got cut back. Plus regulation on parasitical activities like speculative bubbles or psuedo-monopolistic behaviours was pretty common.
    
    Whereas the Reagan / Act / supply-side approach is to just cut taxes and cut spending at the same time.
    
    Truss was relying on the bond markets to not be aware of these traits and to fund a increasing deficit budget for a decade or more. Generally markets tend to support the longer-term Keynesian approach because in the long term it produces better returns for long-term investors.
    
    But bond markets (especially the pension funds) have all been burned before with the same trick of tax-cuts and either not enough cuts in spending (Reagan), poor quality cuts (our economic recession in the 80s and 90s, and then after 2008) or no diversion of spending to more productive uses (Truss). It just leads to deficits and long-term loss of bond returns from risk.
    
    They immediately priced in the risk of a continuation of Truss policies to the risk of a UK failing economy running on debt being unable to provide a sustained return over the longer term.
    
    //————-
    
    Incidentally, the Reagan approach has almost exactly the same as Act's economic policy – including the same belief in magical thinking. They want to drop taxes almost entirely for the wealthy, and to cut tax-funded spending on developing people and infrastructure – instead farming those activities out to the private or charitable sectors.
    
    However casting a wish for something to happen like the economy to lift on tax cuts fuelling economic investment and innovation fast enough to offset the loss of tax take doesn't work. Typically the affluent invest almost entirely in a more luxurious lifestyle or speculative bubble investment rather than anything productive, and typically do it offshore – thereby obviating any trickle-down. They don't donate to charity any more than they used to either.
    
    So parties like Act run on to the second types of magical thinking – that effectively cutting investment in infrastructure investment is costless. That doesn't work either.
    
    Cutting population infrastructural spending just winds up with a rump of people who are unable to participate in the economy through lack of a useful education or health because there aren't the places to educate help them to be productive. It is useful for hypocrites like those who frequent sneer factories like Act because it increases the number of people that they can look down on and provides them with crime figures to gossip about. But it does absolutely nothing to lift the economy. Eventually you just get a rebellion or revolution.
    
    Plus various rising costs on purchasing scarce infrastructural resources wound economic growth (ie like our electricity capacity) because infrastructure is built or upgraded after growth has already occurred – and economic damage is already done. Both act as a break on future economic growth and therefore a risk to long-term investors in that economy.
    
    Act also believe in the magic of private ownership of infrastructure and free markets apparently without having ever looked at how the economics of both invariably causes psuedo-monopolies in infrastructure and artificial shortages to drive up prices and profits for rent-takers.
    
    Free markets are great when they are competitive. But they're bloody useless at building infrastructure for their competition or potential future competitors. That is because they don't like competitors – it reduces their ability to cream profits.
    
    They need to have a monopolistic partner doing things like providing the standard legal basis for the economy that reduces risks for all competitors, doing cradle to the grave improvements on their citizens so that they are as productive as possible, putting in transport infrastructure that competitors can use without designed in disadvantage, etc
    - Gosman 5.1.2.1
      
      11 January 2023 at 1:53 pm
      
      Again you are quite wrong. Tax cuts ARE part of standard Keynesian economic policies in relation to managing downturns in the economic cycle.
      
      "Based on his theory, Keynes advocated for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Depression"
      
      https://www.investopedia.com/terms/k/keynesianeconomics.asp
      - SPC 5.1.2.1.1
        
        11 January 2023 at 1:59 pm
        
        You might be confusing Keynesian economics with supply side economics, a form that was promoted after the "Laffer" curve.
        
        Gosman 5.1.2.1.1.1
        
        11 January 2023 at 2:02 pm
        
        Read the link before commenting and address the evidence not just your reckons.
        
        SPC …
        
        11 January 2023 at 2:03 pm
        
        Yawn. NWMT.
        
        Gosman …
        
        11 January 2023 at 2:06 pm
        
        Failed argument.
      - lprent 5.1.2.1.2
        
        11 January 2023 at 5:25 pm
        
        That wasn't what I argued. Sure, tax reduction was part of the Keynesian theory. I never said that it wasn't. What I argued was that Keynes never argued for reduced taxes for the wealthy.
        
        He argued for the opposite. Grabbing the first link I saw
        
        "For example, Keynes explicitly propounded that taxes could be used to redistribute wealth and thus increase the propensity to consume and that taxes could be used as a form of forced corporate savings, to reduce national debt, and so, reduce the propensity to consume.
        
        This is exact opposite of virtually supply-side twits and parties like Act who advocate major tax cuts to the already wealthy. As I pointed out about tax reductions for the affluent in my comment…
        
        Typically the affluent invest almost entirely in a more luxurious lifestyle or speculative bubble investment rather than anything productive, and typically do it offshore – thereby obviating any trickle-down. They don't donate to charity any more than they used to either.
        
        None of these things "increase the propensity to consume" in economic terms apart from possibly a thin trickle of charitable donations. However even that is often only used by the affluent to generate better tax outcomes for the wealthy – so is probably a nett negative for society and the economy.
        
        A more luxurious lifestyle is typically funded by speculative luxuries of no particular economic benefit. Basically "conspicuous consumption" of no economic benefit. The same often applies to displays of conspicuous compassion of charity.
        
        From memory, Keynes also argued at various times for tax reductions for companies in particular strategic parts of the economy that needed fostering to encourage companies to move into that area of the economy. But most of his arguments about
        
        Perhaps you could point to where he or his theory argued the case for reducing taxes on the wealthy individuals? Because I suspect you're not going to find it.
        
        Post Keynes, there have been some Keynesian based arguments for dropping effective tax rates from some extreme progressive tax systems designed for wealth distribution. For instance the post-war estate taxes in the UK. However I haven't seen any evidence that dropping them did anything useful economically.
        
        BTW: I get very unimpressed when people try to tell me what I said – and get it (deliberately?) wrong. Using a link to a page that should be described as “Economics for Illiterates” doesn’t help either.
    - UncookedSelachimorpha 5.1.2.2
      
      11 January 2023 at 2:54 pm
      
      That is a good link, and should be read by everyone considering Luxon's proposals for more of the same failed ideas.
      
      …research on the impact of trickle-down economics from 1965 to 2015 in 18 wealthy countries revealed that cutting taxes for the rich does not have any significant effect on growth performance or levels of employment. But it does lead to higher income inequality.
      - Gosman 5.1.2.2.1
        
        12 January 2023 at 9:52 am
        
        Neoliberal economics does not advocate cutting taxes for the rich to stimulate the economy.
        
        JeremyB 5.1.2.2.1.1
        
        12 January 2023 at 3:36 pm
        
        That is correct, they advocate cutting taxes to starve Government services and enrich the already rich
        
        Gosman …
        
        12 January 2023 at 4:05 pm
        
        No, it doesn't do that either.
        
        Jeremy B …
        
        12 January 2023 at 10:32 pm
        
        the evidence would suggest otherwise.
- mikesh 5.2
  
  12 January 2023 at 10:00 am
  
  Keynesianism was concerned with promoting full employment, and the most obvious way of achieving full employment, in a depressed economy, is for government to spend on public works programs while keeping taxes at the same level. However, the modern theory seems to be to encourage investment by manipulating interest rates in the hope that greater investment will result in more workers gaining employment; however, this depends on suitable investment opportunities being available, otherwise it jut results in rises in asset prices.
Adrian 6

11 January 2023 at 9:43 am

Surely growth is fueled by he number of people and their increased life expectancy, so a major driver of growth must be healthcare and new incredibly efficient drugs and treatments. Lets revert to the middle ages, I say.
- Gosman 6.1
  
  11 January 2023 at 10:09 am
  
  No. Growth is merely the increase in the value of all the economic activity (i.e. goods and services produced and sold) over a set period of time. More people doesn’t necessarily lead to more goods and services being produced (although there is a connection). An aging population, even if the overall population grows, can lead to economic contraction if they produce and consume less than when they were younger.
Gosman 7

11 January 2023 at 9:54 am

There is a fundamental flaw in Marx's hypotheis around the tendency of the rate of profit to fall. It is based on Marx's erroneous view that the value of a commodity or product or service was tied to the amount of labour that is required to produce it. His perverse view was that greater productivity caused by the use of technology would lead to less labour required to produce the same item and therefore the value of the item would reduce and given the amount of capital would remain the same therefore the rate of profit would therefore fall. Can anyone identify why this is so very wrong headed?
- Tiger Mountain 7.1
  
  11 January 2023 at 10:36 am
  
  Grow up Gosman. From my reading of Marx and others, it is a tendency not an absolute law, and subject to many variables. The thing is to monitor the capitalists rate of profit over time.
  - Gosman 7.1.1
    
    11 January 2023 at 10:51 am
    
    Did you bother to read my comments? Marx’s analysis is fundamentally flawed because it is based on a faulty premise around the value of commodities, products, and services. You haven't addressed that issue and have digressed in to areas that are essentially irrelevant to the point.
- mikesh 7.2
  
  12 January 2023 at 10:18 am
  
  If a situation results in less labour being used to produce the same product, then the price of that product should fall. You seem to be confusing utility value with value in exchange.
  - Gosman 7.2.1
    
    12 January 2023 at 2:53 pm
    
    You are quite wrong. If less labour is used to produce the same product AND demand for that product increases massively then the price goes UP not down. This is because the value of the item is determined by the law of demand and supply NOT on the value of the labour it takes to produce it. That is the flaw in Marx's thinking.
Tiger Mountain 8

11 January 2023 at 10:20 am

Well certainly a lot of people need to be re-engaged politically, particularly at a community and local organising level.

A significant problem with Aotearoa NZs’ near 40 year neo liberalism/monetarism is the extent to which it is embedded, in legislation, practice and culture. The State Sector Act, Reserve Bank Act, contracting out public functions and services all contribute to a convoluted and murky accountability that was designed in. The union busting 1991 ECA reduced strength of the class forces that should reasonably have been expected to hold the line against such pillaging of previous working class people’s achievements.

Dunno if TRPF is the hook though…I recall the late Peter Conway being involved in a short lived left unity attempt–WISSE, an association, Workers Institute for Scientific Socialist Education. Senior members of CPNZ, Struggle Group, SUPNZ, Bill McAra & Diana Willsie from Waihi, random social democrats, and others got a rural property going and seminars were held for several years. Anyway, my point is after Mr Conway (a well respected senior union leader and toiler) had completed his University study he turned away, having been convinced by bourgeois economists that TRPF was not a reality. Conventional economists are generally loathe to even mention Marx name in a non pejorative sense.

If marxism and socialism are too scary for some, how about a flavour of “Eco Socialism” where growth is not the goal, but national and local self sufficiency and an enjoyable life is. Where State infrastructure is renationalised starting with power generation and supply, and a new Works Dept. could handle everything citizens need and usually cough up for including public housing, roading & transport. A basic pharmaceutical industry, hey Cuba and India do it, and rebooting the extinguished manufacturing sector would be good too–hey footwear and quality clothing, radical.

If political understanding and participation grew then booting Rogernomics and limiting finance capital operations such as the big 4 Australian Banks could be campaigned and fought for. It will require a political movement and extra Parliamentary struggle. Capital cannot be voted out. Such things can be done–remember Ihumatāo, the cops were going to move in at night, then a huge online response made it clear the state forces would be outnumbered by arriving supporters, operational numbers in Auckland could not cope.

The NZ Labour Caucus bar Mr Wood (NZ Coastal Shipping makes a comeback–yay!) and Willie, look neo Blairist to me, despite some of their many minor reforms, which they seem strangely reluctant to tell anyone about unless you are on an LP notification list. Good on you for raising all this Nick because there are so many political priorities for the NZ working class.
- Gosman 8.1
  
  11 January 2023 at 10:24 am
  
  The Reserve Bank Act is no longer a neo-liberal tool. As soon as the government added other measures like unemployment that needed to be taken in to account it stopped being so.
  - Stuart Munro 8.1.1
    
    12 January 2023 at 8:21 pm
    
    I think that recent Reserve Bank utterances in respect of externally generated inflation show that the Reserve Bank is an utterly antisocial far-right economic tool with no legitimate role in a democracy.
    
    The proliferation of quasi-state entities as road blocks to socioeconomic reform is a typical dishonest tactic of the far right. Real incomes have fallen for most NZers for decades, and it is this, not a shortage of materiale, that has created the housing crisis.
    
    But the Reserve Bank, in a high inflation environment means to check long overdue catch-up wage growth, and reduce employment, to ingratiate an audience of, presumably, bankers? Such ingratiation has no place in a democracy. The Reserve Bank, insofar as it wants to pretend to political neutrality, would have been obliged to protect wages and employment first. They have shown their true disgraceful colours, and, like TVNZ, are now surplus to requirements.
  - Tiger Mountain 8.1.2
    
    13 January 2023 at 4:12 pm
    
    The word in regards to the Reserve Bank is ‘Employment’. Adrian Orr wants to use unemployment as a method to deal with inflation, so he is deviating from the stated role on behalf of the banksters. The first bullet point on the NZRB www site is this…
    
    • managing inflation to keep prices stable while supporting maximum, sustainable employment
    
    A slippery person can see the room in that statement, but it confirms the NZRB is a neo liberal institution.
UncookedSelachimorpha 9

11 January 2023 at 11:11 am

Whilst I subscribed to socialist ideas in the past, it is clear that attempts to implement such a system to date have all ended in failure.

Agree wrt communism – but some European states are somewhat socialist (e.g. Scandinavia) and that seems to work better?
- Gosman 9.1
  
  11 January 2023 at 12:03 pm
  
  Scandinavia nations are social democracies not Socialist. Their economies are still driven by the private sector and key industries are not all owned by the State.
  - weka 9.1.1
    
    11 January 2023 at 12:53 pm
    
    'somewhat socialist' =/= Socialist, it means social democracy.
    - Gosman 9.1.1.1
      
      11 January 2023 at 1:13 pm
      
      A Social democracy is NOT "somewhat socialist". You may as well claim it is "somewhat capitalist" which would make it meaningless. The Social part of the term is around providing a social safety net. This has nothing to do with the means of production which is what socialism is about.
      - UncookedSelachimorpha 9.1.1.1.1
        
        11 January 2023 at 2:55 pm
        
        Exactly. They are somewhat capitalist and somewhat socialist.
        
        Gosman 9.1.1.1.1.1
        
        11 January 2023 at 3:00 pm
        
        Which makes the term meaningless. You may as well attribute the success of the nations to capitalism as to socialism.
        
        DS …
        
        11 January 2023 at 5:44 pm
        
        Socialism is a journey, not a destination, and the Mixed Economies of the post-war era tended to be built by self-identifying socialist parties. And, yes, Sweden's Social Democrats identified as such.
        
        May interest you to know that the German Social Democratic Party was officially Marxist until the 1950s.
      - DS 9.1.1.1.2
        
        11 January 2023 at 5:39 pm
        
        Clement Attlee's 1945 Labour Government in Britain nationalised a quarter of the economy (and half of British industry). Does that count as socialism? Perhaps I would suggest that the norm for the West from the 1940s to the 1970s was the Mixed Economy. Quite alien to either Soviet Real Existing Socialism or to the Free-Market Paradise we current live under.
        
        The Scandinavia of the 1970s (quite different from the 21st century version) was a version of the Mixed Economy that focused less on state ownership, and more on redistributive taxation, a giant welfare state, and powerful (but cooperative) unions. In short, everything the modern Right has spent forty years trying to destroy, and which the modern Left now considers less important than Identity Politics.
      - mikesh 9.1.1.1.3
        
        12 January 2023 at 11:09 am
        
        Socialism is about getting rid of unearned income, so that workers can receive the full value from their labours without rentier interests "clipping tickets".
        
        Gosman 9.1.1.1.3.1
        
        12 January 2023 at 2:49 pm
        
        Which would suggest Scandinavian countries are not actually socialist (not even a little bit) then.
Thinker 10

11 January 2023 at 11:22 am

What a shame the UK is getting the benefit of your skills. You'd be valuable back here! As a fellow public servant, now left the public sector, but with firsthand visibility of politics from the referee box, it's obvious you've had the same experiences of politicians 'behaving badly' and now and again behaving well.

I don't have your vast knowledge but have reached the point of wondering whether any school of thought, Keynsian or NeoLiberal will serve us well now.

I'm forming the conclusion that those systems were developed as measuring tools during a period in history when resource-exploitation was considered to be humans' purpose. But, at their core, they are simply measuring devices for a world where growth mattered.

In the past 20 years or so, we (the collective world) decided we are overpopulated, that plundering the world's resources is a bad thing and that the wealthier the world gets, the more we stumble to our collective doom, in such important matters as climate change.

Maybe we need to look at our new priorities and develop new measuring and distribution tools that work, going forward.

Your thoughts and an article on that would be very interesting, I bet.
Anne 11

11 January 2023 at 11:38 am

New Zealand was peculiar in its transition to Neo-Liberalism in that it was the Labour Government of 1984 to 1990 that first introduced and championed these right-wing economic policies. At the time the big political issue in New Zealand was the Nuclear Free movement which successfully stopped US Nuclear ships from visiting New Zealand. Whilst this was a worthy campaign, it is strange to think that a government selling off state assets (often for less than their market price) and putting thousands out of work managed to win support based on a Nuclear shipping policy when their economic decisions were hurting so many.

On the face of it, it seems illogical that a political party could be responsible for both of these stances at the same time, but its not when you look at the composition of that Labour government.

There were two major factions and little love shown by either to the other side. Indeed hatred ruled the day and still does among the political personalities that were involved – at least those still alive and kicking. They fought for control of the party throughout the six years they were in power and, imo, neither side won. Neoliberalism won the economic battle but that was because the incoming National government chose to follow and extend the concept.

In the end the followers of Roger Douglas resigned from Labour and formed a new party in the early 1990s along with some former National members. ACT succeeded where most other new parties failed because they were backed by the country's richest tycoons who were looking for a party they could set up as a token partner for National under MMP. Money flowed into the ACT coffers like water flows in a flooded river.

Labour returned to it true base as the party of the centre-Left where imo it still sits, albeit in an up-to-date form.

The above is nothing new to most people, but some seem to forget (or never knew) the origins of the conundrum which led to that Labour government of the 1980s. At the time of the 1987 election the same two forces dominated the scene – neoliberalism (aka market forces) which appealed to a lot of National voters who changed to Labour in droves, and there were the supporters of the anti-nuclear government stance who also voted Labour in droves. I belonged to the latter group.

It all came unstuck in the end but that is another story.

Here endeth the history lesson as I experienced it. 😉
DS 12

11 January 2023 at 1:04 pm

Neoliberalism did fail in 2008, yes. Alas, it remains in charge because the mainstream social-democratic parties of the Left are now committed to it (no-one cares because the Left has bought into Identity Politics instead of Class).

Internationally, we even see the weird phenomenon of Neoliberalism under threat from the Right, not the Left – though the Neo-feudalism of the Right is even scarier.
- Gosman 12.1
  
  11 January 2023 at 1:16 pm
  
  Neoliberalism did not fail in 2008. Creeping government intervention had started to weaken it's influence well before that time. Western nations became obsessed about avoiding recessions since the turn of the century and even before.
  - DS 12.1.1
    
    11 January 2023 at 5:23 pm
    
    It very much did fail. The Global Financial Crisis could only have happened with deregulated financial markets, and the inherent celebration of glorified gambling. It was resolved by Government (hitherto "always the problem and never the solution") chucking untold billions of dollars at these institutions to save Capitalism from its own malignant stupidity.
    
    The sad thing is, Governments didn't overhaul the very basis of the system, and instead has created a system of moral hazard, where rich pricks know they'll always be bailed out because they're too big to fail.
    - Gosman 12.1.1.1
      
      11 January 2023 at 10:47 pm
      
      The GFC happened as a result of the miss pricing of risk. This was facilitated by the regulation of mortgages by the US federal government.
      - SPC 12.1.1.1.1
        
        12 January 2023 at 4:33 am
        
        There was the easy money policy c 2002 and various deregulation.
        
        The mispricing of risk was done by the credit agency crowd who validated assets up for sale on the market (enabled financial corps to fraudulently sell off bad debts). They sold off their own bad debts (and thought they were clever) and then used the money to replace the assets (buying up the bad debts of equally clever competitors).
        
        Not writing off the bad debts allowed huge profits and big bonuses. They same people got big money to retire, cleaning house reduced the embarrassment when they asked for government help.
        
        https://www.thebalancemoney.com/what-caused-2008-global-financial-crisis-3306176
        
        Gosman 12.1.1.1.1.1
        
        12 January 2023 at 9:55 am
        
        No the miss pricing of risk occurred because the US federal government had a number of agencies set up to guarantee mortgages. This encouraged speculators to see mortgage back securities as a high return low risk investment option.
        
        SPC …
        
        12 January 2023 at 10:27 am
        
        Read the link before commenting and address the evidence not just your reckons.
    - mikesh 12.1.1.2
      
      12 January 2023 at 11:43 am
      
      The GFC seems to have been the culmination of problems which started centuries ago when goldsmiths started issuing certificates in excess of the amounts of gold they were holding in their vaults.
      - SPC 12.1.1.2.1
        
        13 January 2023 at 1:15 am
        
        Use of a finite resource as the basis for currency of a growing population, and therefore economic activity, was the original source of inflation. But some might blame the growth in population as the cause and continue to worship gold as the only source of value/values (origin of the cult of mammon) all the same.
  - Stuart Munro 12.1.2
    
    11 January 2023 at 8:51 pm
    
    It failed from its inception. NZ's privatisations are a literal textbook example of how not to privatise – they realised less value and thus less capital for reinvestment than any set of privatisations with the possible exception of Chernomyrdin's, which were most probably even more corrupt.
    - Gosman 12.1.2.1
      
      12 January 2023 at 2:55 pm
      
      Please show me an example of a privatisation that is how you should privatise.
      
      [So far, 25/68 comments under this Post are yours. Your MO is to hijack Posts like these with comments that belong in an ECON101 lecture that seek the attention of the Lecturer and score a few academic points that are of no value to the political discourse on this site. In addition, you are sealioning (https://en.wikipedia.org/wiki/Sealioning) with your many technical questions and requests for detail while having no real interest in debate. In fact, your pseudo-academic wankery stalls and derails the debate here. I called you out on this quite recently in a comment (https://thestandard.org.nz/be-afraid-be-very-afraid-2/#comment-1927806) but obviously, you require a formal warning such as this one – Incognito]
      - Incognito 12.1.2.1.1
        
        12 January 2023 at 3:26 pm
        
        Mod note
      - Drowsy M. Kram 12.1.2.1.2
        
        12 January 2023 at 3:27 pm
        
        Can't think of NZ examples of "how you should privatise" – as Stuart Munro and others suggest, the outcomes of NZ govt privatisations are exemplars of 'for the few, not the many'. One might begin to suspect that's been the plan all along – after all, what use are (public) assets if they’re not enriching the wealthy?
        
        Issues in Privatisation – Costs & Benefits [6 October 2010]
        New Zealand has had an appalling experience of privatisations. The sale of New Zealand Rail and Air New Zealand went so wrong that renationalisation was an imperative. Among the others there was the abject failure of Telecom to develop our telecommunications system despite monopoly profits, most of which went overseas with little reinvestment, the handover of our banking system to the Australian banks through the sale of the Trustee Savings Banks, the Bank of New Zealand and Postbank, only marginally remedied to date by the creation of Kiwibank; the scandalous bargain price sale of the Government Printing Office to kick start the empire of New Zealand and Australasia's wealthiest man, Graeme Hart; continuing dysfunction in the partially privatised electricity system which created blackouts, huge price increases, inadequate investment and still fails to provide reasonably priced and secure power; conferral of duopoly status in commercial radio through the sale of Radio New Zealand's commercial stations; the loss of huge potential for further processing in the sale of forestry cutting rights; and Housing Corporation mortgagees feeling defrauded when their mortgages were sold to private financiers.
      - weka 12.1.2.1.3
        
        12 January 2023 at 3:27 pm
        
        there aren't any.
      - Gosman 12.1.2.1.4
        
        12 January 2023 at 4:09 pm
        
        I actually am one of the few who have kept to the topic. Most people have wandered off topic to wrongly label various policies as neoliberalism whereas I have raised the issue why the Marxist hypothesis around the tendency of the rate of profit to fall over time is wrong. That goes to the heart of the OP.
        
        Incognito 12.1.2.1.4.1
        
        12 January 2023 at 4:47 pm
        
        No Gosman, that’s not the issue with your usual avalanche of comments, and you know it, so don’t waste my time!
        
        Labelling ≠ debating
        
        Correcting labelling ≠ debating
        
        Correct terminology (words, concepts, meanings, et cetera) is necessary but not sufficient for quality debate. However, at some point we need to move past the grammar police and unreasonable demands for absolute perfection and getting bogged down in technical detail to debating the bigger picture. That’s where you invariably fail because you cling to failed ideology in your desperate denial and your reflexive resistance to anything different let alone progressive.
        
        The OP is more nuanced on Marx and neoliberalism than your singular negative nitpicking. You have offered no viable alternative theory or hypothesis for the tendency of the rate of profit to fall or how this should be implemented and impact on socio-economic policy here in NZ. In short, your destructive antagonism adds very little if anything to the debate here. Instead of your scattergun tactic (!), you may want to slow down and dig deeper into practical approaches for better management of the economy instead of your zillions of dogmatic rejections that barely scrape the surface of the issues.
        
        Gosman …
        
        12 January 2023 at 6:16 pm
        
        The rate of profit does NOT fall over time. Indeed it could be argued that there is evidence for the opposite. The very fact that there is less of the economic pie going to labour versus capital (hence why we have billionaires like Musk and Bezos) is one of the reasons why inequality has increased over the past 40 years. That means the rate of profit is not falling but increasing.
        
        Incognito …
        
        12 January 2023 at 6:44 pm
        
        I think you have just argued how capitalists try to counter the tendency of the rate of profit to fall and that this leads to one of the real major issues of capitalism, which is growing inequality and consequent socio-economic and political instability. Shifting more investment into capital also increases pressures on natural resources and the environment. The driver is the rate of profit and the motivator is greed. BTW, social inequality has been around since the era of feudalism and capitalism has continued and worsened it, exponentially.
      - Stuart Munro 12.1.2.1.5
        
        12 January 2023 at 6:20 pm
        
        There are of course a range of criteria, and a 'good' privatisation should meet a number of them.
        
        At the lowest ebb, there is the capital return to the public estate on the sale. This was one of the primary failures of NZ privatisations, with assets like radio frequencies fetching as little as $1.00, only to be subsequently resold for considerably more, which was simply incompetent disposal.
        
        A leading argument for privatisation is the presumption that commercial acumen will stimulate performance, enabling them to deliver better service at lower cost. The rule in NZ was very much to the contrary, with enterprises that actually survived the transition frequently failing or requesting bail outs, failing to deliver adequate services, or making end runs around rules to obtain profits without delivering any services at all – meaning that the mass privatisations of the 90s imposed a series of deadweight costs upon the economy for very little real gain. The exception to this rule was Telecom – not because it was well managed (they were and are rubbish) but due to the maturation of a series of tech improvements (not of course developed by prats like Shirtcliffe or Gattung), that drove a series of reforms.
        
        In fact no privatisation springs to mind as a good example – the best they reach seems to be acceptable. Even the Seoul subway privatisation has met with universal condemnation.
        
        Perhaps you have an exception, Gosman, that you suppose can survive exceptio probat regulam? Even if you did, an insuperable weight of evidence lies against you.
Stephen D 13

11 January 2023 at 4:36 pm

If I was wanting to read one book to help me understand economics, what would it be? Or is there no such thing?
- Matiri 13.1
  
  11 January 2023 at 4:48 pm
  
  How to Teach Economics to Your Dog
  
  https://www.simonandschuster.com/books/How-to-Teach-Economics-to-Your-Dog/Rebecca-Campbell/How-to-Teach/9780861543793
  
  One snippet is a discarded kebab on the pavement being an example of trickle down economics.
- DS 13.2
  
  11 January 2023 at 5:24 pm
  
  The Great Crash, 1929, by John Kenneth Galbraith.
- Macro 13.3
  
  11 January 2023 at 9:11 pm
  
  My fav is:
  
  What's the Economy For, Anyway?: Why It's Time to Stop Chasing Growth and Start Pursuing Happiness
  
  In this funny, readable, and thought-provoking book, activists John de Graaf (coauthor of the bestselling Affluenza) and David Batker tackle thirteen economic issues, challenging the reader to consider the goal of our economy. Emphasizing powerful American ideals, including teamwork, pragmatism, and equality, de Graaf and Batker set forth a simple goal for any economic system: the greatest good for the greatest number over the longest run. Drawing from history and current enterprises, they show how the good life is achieved when people and markets work together with an active government to create a more perfect economy-one that works for everyone.
  
  my bold
- Thinker 13.4
  
  11 January 2023 at 10:45 pm
  
  Unless you want to BE an economist, just be satisfied knowing that economics is about finding ways to share resources when there isn't enough to go around and to prioritise what should get done when there isn't enough money to do everything you would like to do.
  
  I think what you are really looking for is to understand the political ideologies that cause politicians to direct their economists and policy people to do what they do according to said ideologies.
  
  Check out books by Jane Kelsey and Brian Easton.
  
  As a primer, though, go on YouTube and search for "mind the gap Bryan Bruce" and you'll find a watchable documentary. Type all the words because there's another film of the same name.
  
  While in youtube, watch "someone else's country" and/or "in a land of plenty". If not on YouTube it's definitely on nz onscreen.com
- arkie 13.5
  
  13 January 2023 at 11:16 am
  
  University of Otago ESRA researcher Neil Vallelly wrote this book in 2021:
  
  https://marxandphilosophy.org.uk/reviews/20700_futilitarianism-neoliberalism-and-the-production-of-uselessness-by-neil-vallelly-reviewed-by-edward-langley/
- Nic the NZer 13.6
  
  13 January 2023 at 12:13 pm
  
  https://www.bloomsbury.com/au/macroeconomics-9781137610669/
  
  Macroeconomics
  
  By William Mitchell, L. Randal Wray and Martin Watts.
  
  Even if you don't accept the validity of the MMT approach its contrasted with the mainstream approach anyway.
  
  Also,
  
  http://bilbo.economicoutlook.net/blog/?cat=35
  
  I'm not sure William Mitchell took down any of his blog posts which were draft versions of his contributions to the text book.
Stuart Munro 14

11 January 2023 at 9:02 pm

I don't think that any single economic circumstance or policy carries all the weight of blame for the economic decline since the 70s. Not even a folly as corrupt as Rogergnomics.

The prevailing postwar policies had been constructive. It was the era of the Great Society, the New Deal, and the Marshall Plan. International policies like those of the World Bank were developmentalist, rather than being aimed to mousetrap fledgling economies the way that institution did during the Asian Financial Crisis and later, under the Neocons, the looting of Baghdad.

Developmentalism worked. Neoliberalism never has – except for the corrupt few.

We are many, they are few,

shake your bonds to the earth like dew,

that while you slumbered were laid on you.
- Thinker 14.1
  
  11 January 2023 at 10:17 pm
  
  The problem started when professional lobbyists took hold of politics, instead of party membership. The sad effect of that was to cause more people to walk away from an interest in politics based on the thought that unless you own a politician you don't have a voice, which has left power in the voices of the corporatocracy, on the right, and a more ideologically-driven left. (IMHO).
  
  That, plus the destruction of collective representation for workers.
tWiggle 15

12 January 2023 at 1:14 am

Out of interest, a partner of a coworker was employed by the NZ Employer's Federation. He helped draft their wishlist legislation, essentially the Employment Contracts Act introduced by National into law. They were delighted when the NZ Union movement completely dropped the ball. If labour leaders had threatened general industrial action, the Nats would have toned down the removal of union powers considerably.

I can still remember his crowing and elation over drinks when he was telling us of the ECA success. Suckiest legislation ever for organised labour in NZ.