What do the Important People think of the (possible) end of capitalism?

(crossposted at Firedoglake)

A lot of what I'm getting over the Internet these days is an attitude that, because I'm asking questions, this means that I have some sort of attitude that they don't like. Let me suggest an alternative option, one more suitable to Internet dialogue. Maybe I just don't know the answer, and you can educate me with your opinions?

At any rate, this is one of those. I am asking "what do the Important People," the leaders of opinion and the academic intellectuals who are consulted by government, "think of the possible end of the capitalist system"?

Okay, so who are the Important People? A society as complex as ours needs managers -- the Important People are the intellectual strength behind the managers. They are what Kees van der Pijl calls the "cadre class," the class which does the thinking necessary to maintain existing political and economic systems. You know, the folks who decide what's important for the other, powerful folks on Wall Street and in Washington DC who make the big decisions.

NB: I am the founder of the postcapitalism group at DailyKos.com . In founding this group, I thought that we ought to go further than mere antcapitalism, to discuss what is going to happen after the capitalist system is dead and gone. I don't think the end of the system is as far off as many people would like to believe -- I'd give the existing system about thirty years at most, for reasons that should be apparent below.

I'm starting to read some things that make me doubt that my position is as marginal as it seems. Oh, sure, they're not discussing this on the Six O'Clock News. But you wouldn't expect anyone who is granted any responsibility for the status quo to publicize any other position than that capitalism is going to last forever.

Here is what I am reading, though.

The Pentagon is planning for a future in which mass uprisings will be triggered by global warming-amplified events.

Pentagon bracing for public dissent over climate and energy shocks

in 2010, the Pentagon ran war games to explore the implications of "large scale economic breakdown" in the US impacting on food supplies and other essential services, as well as how to maintain "domestic order amid civil unrest."

Of course, this isn't something new Ahmed discovered here -- it was also discussed in detail on Grist, and there are plenty of other sources for his revelations, extending all the way back to 2004.

Meanwhile, economists are starting to issue forecasts for global economic growth that actually match the OECD record for the past forty years, that is to say that global economic growth is slowing from a high of 4.9%/year in the 1960s to an eventual rate of zero. From the same journalist:

While mainstream economists continue to predict an ongoing 'recovery', other leading experts point to the end of growth as we know it for the foreseeable future.

So we're going to have a capitalist system without economic growth? How? Will anyone even bother with borrowing money at interest anymore, given how difficult it will be to pay the interest payments (never mind paying back the principal)?

It's easy, moreover, to explain why the mainstream economists are so desperate to predict "recovery" despite the general atmosphere of austerity promoted by the elites. Some of the debate in academic circles is about the "confidence fairy," the idea that economic confidence as expressed in the opinions of Important People will be a booster of real life economic growth. Here's Paul Krugman on this topic from last year:

What the expansionary austerity types are claiming is that the indirect effect of austerity on confidence will outweigh the large direct depressing effect of cutting government spending now. That’s a very tall order.

So, if you are one of the Important People, say for instance Brad DeLong, you need to believe in the Confidence Fairy, because your disbelief would be bad for the real economy. We can't have the Important People telling everyone the economy is doomed -- it would result in panic in the markets or something like that. In that regard, we should find it noteworthy that there is real-life dissension from this appeal to groupthink in the ranks of the economists. In fact, it should tell us something important about the real economy -- if the economy is unable to support its own Confidence Fairy, there's something really wrong with it.

It's important, here, to recognize that the idea of the "Confidence Fairy" is merely an adaptation of the role of confidence in the work of John Maynard Keynes, the famous economist. The idea of economic stimulus as expressed by Keynes was that more money in the economy will stimulate economic confidence, and thus business owners will choose to spend more, thus increasing overall economic circulation. Krugman, as a Keynesian, supports the "Confidence Fairy" as such -- the problem, of course, is that at some point in the game (as Krugman also points out), belief in the "Confidence Fairy" is not supported by the facts on the ground, at which point promoting the "Confidence Fairy" becomes unrealistic and thus counterproductive. Right now we appear to be at the point at which the "Confidence Fairy" has become an object of mass conformity in belief -- say you believe in the Confidence Fairy, or else things will be worse.

Now someone as marginal to the Important People as Chris Hedges is able to discuss, openly in the US alternative media, the matter of whether we can change trajectory and avert collapse. The video is worth watching:

"We are emulating all the mistakes that complex societies have made over the past 5,000 years." Hedges, here, also cites a report by the World Bank on global warming that is "pretty apocalyptic." Hedges himself is marginal -- but the World Bank are definitely "Important People." Can anyone here find the report Hedges is citing?

Now, considering its economic importance, all of the Important People are going to maintain the whole Confidence Fairy scheme until there's some sort of tipping point and it's obvious to everyone that the world-society is in economic and political free-fall. I'm hoping that at some point common sense will take over, and there will be some real public discussion about what science fiction writer Kim Stanley Robinson calls "ending the multigenerational Ponzi scheme." Robinson:

Am I saying that capitalism is going to have to change or else we will have an environmental catastrophe? Yes, I am. It should not be shocking to suggest that capitalism has to change. Capitalism evolved out of feudalism. Although the basis of power has changed from land to money and the system has become more mobile, the distribution of power and wealth has not changed that much. It’s still a hierarchical power structure, it was not designed with ecological sustainability in mind, and it won’t achieve that as it is currently constituted.

The main reason I believe capitalism is not up to the challenge is that it improperly and systemically undervalues the future.

I see this undervaluing every day in discussion over the Internet. Our society has developed an obsession with the present moment at the expense of any serious consideration of the future. We can start to deal with this problem in our own writings -- by discussing the future in them. More Robinson:

Second, the promise of capitalism was always that of class mobility—the idea that a working-class family could bootstrap their children into the middle class. With the right policies, over time, the whole world could do the same. There’s a problem with this, though. For everyone on Earth to live at Western levels of consumption, we would need two or three Earths.

It's likely, however, that the promise of class mobility will itself disappear long before the bad ecological end due the capitalist system, with the biggest pay drop on record this June, and all of the income growth since 2009 going to the richest 7% of Americans in the first two years of the "recovery." If capitalism does not offer any promise of social mobility, why should we offer our faith and trust in its workings?

Now, having said all that, I'm just itching to read your comments. "Crises have occurred before, so there's no reason to believe that capitalism won't survive them blah blah blah," I can already hear you saying.

When dealing with discussions of what the future will bring, with an eye toward looking at the world-system, is Jason W. Moore. I've discussed Moore's writings in previous diaries. To summarize briefly: Moore gives a number of good reasons for us to believe that the capitalist system is quickly approaching its terminal crisis, because it's encountering problems of "peak accumulation" -- the costs of accumulating are weighing down the system with increasing burdens, and there will be no forthcoming era of cheap resources to save us from these costs. Previous crises were not terminal crises because in the eras in which they occurred there was still a frontier for capital accumulation, the motor of the capitalist system. But this isn't true today. Even emergent resources such as solar power will not save capitalism because they just simply aren't vehicles for profit in the same way in which drilling for oil brings profits to oil corporations. You can see this in the German economy -- despite Germany's extensive investment in solar power, its economy is still tanking with the rest.

Look, even The Economist, a 1%er rag if there ever was one, ran a piece back in 2008 called "The World Economy: Capitalism At Bay." They were no doubt scared enough at that time to consider the possibility of a vast economic collapse. Now I'm sure that, with corporate profits at record highs, the super-rich and their paid intelligentsia are not focusing too hard on the prospects of civilization-wide collapse. But the idea of collapse can't be too far from their minds. So what are they thinking?

I cede the floor.





Your rating: None Average: 3 (1 vote)


I would disagree with this characterization:

BruceMcF's picture

It's important, here, to recognize that the idea of the "Confidence Fairy" is merely an adaptation of the role of confidence in the work of John Maynard Keynes, the famous economist. The idea of economic stimulus as expressed by Keynes was that more money in the economy will stimulate economic confidence, and thus business owners will choose to spend more, thus increasing overall economic circulation.

The idea of economic stimulus as expressed by Keynes himself was that more spending by government would increase total effective demand, increasing overall economic circulation and therefore justify increased business confidence.

That is, indeed, a substantial difference between the General Theory approach and the Pre-Keynesian approach used by both "New Classical" and (confusingly) "New Keynesian" economists (like Krugman) ... "NEW" in economic theory seems to be an acronym for "No Effing Way", because there's No Effing Way that NEW Keynesian economics can be confused with the actual economics of Keynes, No Effing Way that NEW Classical economics can be confused with the actual economics of the classical economists.

It was the economics of Paul Samuelson and his ilk who adopted the mechanical elements of the General Theory but abandoned the discussion about the intrinsic uncertainty of making investments based upon the guesses of the wealthy as to what was going to happen next that put us on the road to abandoning what was most useful in the General Theory and retaining mostly those parts that Post Keynesians have since superceded.

Putting the confidence of the business sector between the stimulus and the impact upon economic growth is abandoning the General Theory and returning to the pre-GT thinking that was exposed as incapable of explaining what happens in a general financial crisis and its aftermath ... both in the 1930's and then, after the pre-Keynesian thinkers, dressed up in more mathematics, had purged Post Keynesians and Institutionalists and Social Economists and Radical Political Economists from the top economic departments, in the current labor market Depression, five years old and still going "strong".

Your rating: None Average: 3 (1 vote)

When I read "adaptation" ...

BruceMcF's picture

... I don't read "total reversal and contradiction" as part of it. In "I adapted Cassiodorus's argument in favor of socialism by tossing it to the curb and replacing it with an argument in favor of a mixed feudal, communitarian and syndicalist economy" ... that would not strike me as a correct use of the word "adapted".

(Not that I would, mind, its just a usage example.)

You could well say "an adaptation of the conventional Keynesian role of confidence", since its well understood by most anybody who actually understands the role of confidence in Keynes, that that was what was tossed overboard to simplify the analysis to create conventional Keynesian models, and the clueless mainstream economists who have no clue that there is a difference between Keynes and conventional Keynesian would be blind to the difference.

No votes yet


Cassiodorus's picture

The "Confidence Fairy" idea is not a "total reversal and contradiction" of the role played by investor confidence in any version of Keynesian economics.  What are you talking about?

No votes yet

Its a total reversal of the role played ...

BruceMcF's picture

... by investor confidence in the government pursuit of full employment policies in both the Keynesian economics of Cambridge, UK in the 50's and of Post Keynesian economics from the 60's through to the present.

That is, if you are switching from talking of the economics in Keynes to talking of Keynesian economics.

If you are switching to talking about Keynesian economics, remember the family tree here. First you have Keynes' economics, first the development of some of the early antecedents of MMT in the Treatise on Money, and then movement from his specialty of monetary economics into the economics of what he called the monetary production economy in the General Theory.

You have people working in the General Theory tradition in the 50's but also Samuelson and the development of what was thought to be a Keynesian - neoclassical synthesis. For the purposes of better fit with neoclassical microeconomics, the Samulesonian "Keynesian" was a watered down version of the General Theory that set aside much of the emphasis on intrinsic uncertainty. It also built in the ISLM framework, which contradicts the missing piece of Keynes' theory of liquidity preference, published in an article following the General Theory in the late 1930's. But, of course, WWII intervened, Keynes' broke his health working on the problems of wartime finance in the UK during WWII and died shortly after the war.

But in the 70's it became clearer that the neo-Keynesian synthesis was inconsistent, and we saw the fights between the monetarists and the Post Keynesians, the former rejecting the Keynesian side of the synthesis and the latter the neoclassical side, and into the 80's the emergence of Rational Expectations and New Classical macroeconomics. The "New Keynesian" approach is entirely neoclassical in the long term, but appeals to rigidities and menu costs to allow for Keynesian style effects in the short term. And of course you still have the Post Keynesians, through the mainstream utility theoretic economists largely pretend that the Post Keynesians don't exist (as they pretend that Institutionalists, Social Economists, Radical Political Economists, and Neo-Sraffians don't exist).

In all of neoclassical pseudo-macroeconomics, there is some form of a natural state for the economy and direct government intervention to stimulate economic demand is doomed to futility, only disagreeing over whether it is doomed to futility in the short term (New Classical) or long term (New Keynesian, monetarist). Hence if "stimulus" is to work over the long term in one of the neoclassically rooted approaches, it has to do so via boosting investor confidence, and then if all investors act as if they are more confident, that confidence is justified by the resulting economic expansion. Hence the confidence fairy.

In all of the macroeconomics rooted in the General Theory, the government can indeed act to directly intervene in depressed economic conditions by directly employing people and buy placing orders with business firms for goods and services. Businesses can be as depressed with confidence as shaky as you please, but presented with an order, they will still produce to place that order. The wealthy can be as shaky and lack as much confidence as you care to specify, and so save rather than consume a large portion of their share, but those in the middle and lower rungs of the income ladder will end up spending much of their new income. No confidence fairy is required to wave its magic wand in order for the government stimulus to lead to an expansion of economic activity.

Now the bulk of "Keynesian Economists" have been pursuing "Keynesian" approaches more and more dominated by natural rate of output thinking since the 1970's at least, which is precisely the pre-Keynesian position that Keynes was debunking with the General Theory, so for the most part, when you say "Keynesian" and when you say "the economics in Keynes", you are talking about opposite positions regarding the necessity of the confidence fairy. The main exceptions are if you say "Post Keynesian" or "Keynesian Institutionalist".

No votes yet

I don't really understand that, nor will I

geomoo's picture

but it seems obvious to me that taking the notion of confidence to such an abstract level that confidence is said to determiine reality, that this is the way of magic.  Sure, if you are being underfed in prison, you can prolong your life by pretending your thin gruel is a big meal, by chewing as you would an actual nourishing meal, eating slowly, and visualizing real food.  It helps.  This proven fact does not indicate that the solution to world hunger is for everyone to have confidence that they are being well fed.  If you aren't eating enough food, you will eventually die.

Without knowing the details, my suspicion is that, to economists, more or less consciously, confidence makes good suckers.  It's not for nothing that it's called a confidence game.

No votes yet

Not to economists ...

BruceMcF's picture

... though quite plausibly to those who pay "market" economists.

The General Theory argument is that if in depressed economic conditions the government orders stuff and hires people to perform services, businesses will sell that stuff and people who are already offering their labor services without success will take those jobs. There is no "confidence" involved.

The "confidence fairy" is for those trying to argue against government doing what quite obviously will indeed quite reliably generate more economic activity, and instead bank on "keeping interest rates low" (allowing financial firms to generate easy returns by acting as the middleman getting their funding on easy credit terms) and "maintaiingn business confidence" (by allowing businesses to grab over 100% of the gains from improved labor productivity, leaving labor to face declining wages even as more and more product is squeezed from their work).

No votes yet

I have a bunch of responses--will try to limit.

geomoo's picture

The main thing, to me, is that capitalism as a lens through which to view our time is inextricably interwovcen with every other dynamic.  Naturally, my thoughts go to areas in which I have some insight.  These are not areas of economics, which consistenlty leaves me baffled.

I'm not saying I'm one of the important people, so I'm not really answering the question asked.  But I will put down a few thoughts.

One thing about the important people, including the brilliant ones and even some with high integrity, is that they are humans and humans are not very rational in our behavior.  I always take the example of the man responsible for the safety of the French blood supply learning that it was contaminated with HIV.  The consequences were far-reaching, devastating.  What did he do?  He kept his mouth shut for months--I don't remember, perhaps years--while people became infected with and died from AIDS.  We can hate this man and easily imagine ourselves being so much wiser. But the fact is that many of us, put in his shoes, would be just as chicken to face the music, the embarrassment, the end of our lives as we know it.  Point is, even humans who think big thoughts are petty and at the mercy of unconscious and unskillful impulses.  This simple fact of human nature will have much more effect on the decisions made than we ever like to accept, to our great harm.  Most people will choose denial over facing an extremely difficult reality for which they have no effective response.  This is bad news.

But, i did just have a new idea as I was reading this essay.  It occurs to me that capitalism isn't really with us because someone had an idea for a system of economic organization and it was then implemented;  no, capitalism sprang up as a human response to environmental forces with accident and conscious choice playing variable roles in a system that found its way.  When I think of this, it occurs to me that natural evolution, so to speak, will be the primary force that determines what will happen next.  One hopes there will be more rather than less human analysis and choice in doing what we can to organize ourselves, but history would suggest that mostly things will be happening to us and we will respond.  Again, not particularly good news, but perhaps a bit of a relief.

Another aspect of human nature--we are not typically a species governed by long-range decision-making.  And in these days of habitual immediate gratification, even less so than historically.  We do not well imagine things being different than they are.  In winter, I find, it is impossible to fully imagine the warmth of summer in a lush garden, and vice versa.  Which brings me to a very important statement in this essay:

Our society has developed an obsession with the present moment at the expense of any serious consideration of the future. We can start to deal with this problem in our own writings -- by discussing the future in them.

No votes yet

Yes, I had never heard that before.

geomoo's picture

It immediately struck me as likely and as what one would expect.  I appreciate the recommendation, but honestly, I don't have a good mind for this stuff.  I rely on people like you, and I enjoy the conversations.  There is, indeed, so much to read and on so many topics.  And I'm a slow reader, so I'll be focusing my reading elsewhere while not being afraid to dabble.

No votes yet

Also bear in mind that Japan, which ...

BruceMcF's picture

... also developed a capitalist industrial economy ~ later and with technological borrowings, of course, but organically on their own rather than having it imposed upon them ...

... was the other principle feudal system in the world-system stretching from Europe in the West to Japan in the East, with its wealth center for most of the period until the mid-1800's in China.

There sure does seem to be something about personal vassal / lord relations and loyalty of the military upper class bought by giving them control of the product of some part of the domain that puts it on the inside track toward developing a capitalist system.

Your rating: None Average: 3 (1 vote)

What's coming after capitalism? Good question.

neroden's picture

I think we can influence what we get by affecting the ideas circulating in popular thought.

Right now, capitalism is failing for what might be called "Veblen" reasons: the elite are obsessed with stealing, and have forgotten where their wealth comes from.  They have put themselves in a Versailles-like bubble so they don't recognize what's going on, and they are short-term thinkers so that they cannot recognize what is going on.

They are doomed.

The question is, of course, what replaces them?  I'd love it if we had a social democratic revolution.  But there are other possibilities.  A warlord who thinks long-term and who has the loyalty of his troops is very likely to rise to the top.  Or multiple such warlords may do so. This may be combined with a strict morality or ideology for further advantage (see Oliver Cromwell).  In short, we may see a new feudalism.

Remember that the Roman Empire had a very capitalist system; as it died, feudalism replaced it.


Your rating: None Average: 3 (2 votes)

Further points.

neroden's picture

The majority of the 1% really are not thinking about either the risks posed by climate change or the risks posed by their own greed.


A minority of them are.  The others are not listening.  This internal split is important.  The ones who really are not thinking about the future are both useless and doomed, though they are very dangerous in the short run, as they are very good at breaking things.  This includes the Koch Brothers types.


The ones who are thinking about the future... are potential movers and shakers.  The Al Gores, Jimmy Carters, George Soroses, Wesley Clarks, well, they're the nice ones.  There are probably some who are not so nice as well.

Your rating: None Average: 3 (2 votes)