we talk a lot about the “post-war capital-labor accord” and the golden age of the 1940s-1970s. In these years, inequality went down, unions flourished, civil rights laws were passed along with LBJ’s Great Society programs like Medicare, etc. Corporations saw themselves as not just profit-seeking nexuses-of-contracts but also as institutions with duties to their stakeholders – employees, local community organizations, etc.
.. Then everything went to hell in the 1970s. Oil shocks, poor economic performance, large increases in foreign competition, an overheated economy created by the meeting of increased social spending and increased military spending, all combined to create massive inflation and other sorts of economic upheaval.
.. union contracts were blamed for causing inflation and big business began to push for
regulatory changes (to fight the hated EPA and OSHA, along with unions) and increased layoffs.
Institutional investors, growing rapidly in size in part *because* of the prosperity of the “golden age” (e.g. the massive pension funds like CALPERS and TIAA-CREF), began to demand discipline from corporations unused to having to listen to anyone
.. Changes in financial regulations and institutions made possible the junk bond market and, in turn, a more active market for corporate control – suddenly, large firms that were used to making acquisitions became targets.
.. by the mid-1980s, the golden age had ended along with the capital-labor accord and something new had begun – perhaps we can call it the “neoliberal era
.. This era’s hallmarks include the dramatic decline in unions, massive increases in the share of wealth going to the top 1% and .1% (cf. Piketty and Saez), massive increases in the share of profits going to finance (cf. Krippner 2005), and an overall change in the way that corporations perceived themselves.
.. No longer institutions with obligations beyond profit-seeking, corporations became (thought of as) legal fictions that served the sole purpose of maximizing shareholder value
.. The old dominant strategy of firms was to “retain and reinvest”, the new mantra was to “downsize and distribute”
.. The old model of the firm was GM – a massive, vertically integrated institution that dominated a market and did everything in-house. The new model was the “Original Equipment Manufacturer” (OEM), a firm like Nike that designs a product and markets it but outsources and off-shores as much of the actual producing, distributing, etc. The firm is now a brand, an identity demarcating a certain set of contracts, whose value is more about intangibles than men and machines.
.. Okun’s Law is an economic relationship between the magnitude of an economic downturn (in terms of real GDP) and increases in unemployment
.. if GDP (production and incomes, that is) rises or falls two percent due to the business cycle, the unemployment rate will rise or fall by one percent. The magnitude of swings in unemployment will always be half or nearly half the magnitude of swings in GDP.
.. The last downturns – 1991ish, 2001ish and the current moment – have all been characterized by “jobless recoveries” or, more broadly, much larger decreases and much smaller increases in unemployment than would be predicted by Okun’s law.
.. “businesses will tend to “hoard labor” in recessions, keeping useful workers around and on the payroll even when there is temporarily nothing for them to do”.
.. Manufacturing firms used to think that their most important asset was skilled workers. Hence they hung onto them, “hoarding labor” in recessions. And they especially did not want to let go of their prime productive asset when the recovery began. Skilled workers were the franchise. Now, by contrast, it looks as though firms think that their workers are much more disposable—that it’s their brands or their machines or their procedures and organizations that are key assets.
.. The 1980s saw a reordering of the world – a transition from a period governed by one set of rules that privileged the relationship between businesses and their employees to one that privileged (relatively speaking, in ideology anyway) shareholders.
.. What variables should we care about, if GDP seems to be connected less to welfare than it used to be?
.. the neoliberal period is marked by dramatic, mind-boggling increases in executive compensation without, as far as I know, any signs of better performance or increased shareholder value.
The Millionaires Are Fleeing. Maybe You Should, Too.
In the worst cases, bouts of capital flight can gain momentum until the value of the currency collapses, plunging the nation into crisis.
.. Balance of payments records show that 10 of the last 12 major currency crises, dating back to the Mexican peso meltdown of 1994, began when residents started sending money abroad, which was typically two years before the currency collapsed. Often politicians blamed “evil” and “immoral” foreign speculators for these crises, but it was the locals who first saw trouble coming.
.. Right now, this forensic accounting offers clear evidence of looming financial difficulty in only one major country: Turkey.
.. Starting early last year, affluent Turks began effectively moving large sums of money out of the country by exchanging their lira bank deposits for dollars and euros, while foreigners continued to buy Turkish assets.
.. Turkey’s millionaires appear to be fleeing both deteriorating financial conditions marked by very high inflation, and President Recep Tayyip Erdogan’s crackdown on his critics, including those in business.
.. Owing largely to the stability and glitter of the most famous emirate, Dubai, the United Arab Emirates in 2017 had a net inflow of 5,000 millionaires, increasing the size of its affluent population by 6 percent, the largest gain in the world.
.. Britain was among the millionaire havens until 2016, but may continue losing ground until it can resolve the uncertainties raised by Brexit.
.. Savvy locals are also the first to return when a country’s fortunes begin to turn for the better.
.. More broadly, economists and politicians might rethink the blame they heap on “immoral” foreigners in periods of capital flight. They assume global money managers are more sophisticated than provincial locals
but those longtime residents are in fact quicker to spot and respond to trouble in their own backyards
Why Reinvent the Monetary Wheel?
Cryptocurrencies promise to realize Friedrich Hayek’s dream of a free market in money. But human societies have discovered no better way to keep the value of money roughly constant than by relying on central banks to exercise control over its issue.
.. Underlying this recurrence is the instinctive feeling that economic calamities must have monetary causes, and therefore monetary remedies... If monetary fluctuations are the main cause of economic fluctuations, and if one can ensure the right quantity of money to support normal business activity, there will be no need for government interference. This has been the main teaching of economists wedded to free markets... Few remember that quantitative easing (QE) marked the start of US President Franklin D. Roosevelt’s New Deal. With the US on the gold standard, the Treasury purchased gold to lift its price and thus augment the buying power of heavily indebted farmers. FDR’s gold-buying spree, described at the time by John Maynard Keynes as “the gold standard on the booze,” has been generally dismissed as ineffective... In other words, there is no elasticity in the currency. This means that long before the mine is exhausted, the currency will run into the same problem as the gold standard: not providing enough money to support a growing economy and population. This would be exacerbated by any tendency to hoard bitcoins... At the same time, cryptocurrencies provide no security against inflation. Hayek thought that a competitive currency system would eventually lead to a monopoly of the one that kept its value best. But we have, of course, been through exactly this process of weeding out inflationary currencies throughout history, and we ended up with central banks. It is amazing that anyone should consider it necessary to retrace these steps, only to end up in the same place... The Hayekian diagnosis of the last crisis – excessive creation of credit by the banks – is correct as far as it goes. But one has only to ask why this happened to understand that there are no mechanical answers to the question or solutions to the problem. It’s not quite true to say, “Look after the economy and money will look after itself.” But it is nearer the truth than the belief that monetary reform on its own will cure the problems of a sick economy.
Inflation? Bring It On. Workers Could Actually Benefit.
as is too often the case when workers finally start to see some of the benefits of growth, economists are warning that higher wages will lead to inflation, and they’re calling for the Federal Reserve Board to hit the brakes by raising interest rates.
What if we tried an experiment and waited until inflation actually began to rise substantially before raising interest rates too quickly? Even if prices did rise, my hypothesis is that the benefits, especially for those who haven’t gained from economic growth in recent years, would exceed the costs of higher inflation.
.. It’s not exactly clear why prices haven’t risen very much. It may be because greater international competition keeps prices down; because the decline of union contracts means that fewer companies give automatic cost-of-living adjustments; because consumers can compare prices so easily on the internet; because oil prices have fallen recently; or simply because, after years of low inflation, people expect price increases to be limited.
.. the costs of the Great Recession were enormous — at least $4 trillion in lost income, or about $30,000 per household
.. a high-pressure economy run over a longer period will actually increase that potential by pushing firms to improve productivity and draw more workers into the labor market.