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higher taxes on the wealthy may help in the short term, but it’s not a magic-bullet solution to the current slump

December 2, 2013

From Business Insider:

Sorry, Folks, Rich People Actually Don’t ‘Create The Jobs’

Superficially, I think this article makes a good point insofar as it acknowledges the role the working class plays as consumers, and as a consequence, job creators. In all the talk about spurring job creation and economic growth, particularly in relation to nurturing the present economic recovery, it’s often argued that the wealthy (i.e., capital) are the real ‘creators’; and those who do often propose that lowering taxes and lessening regulations for businesses and the wealthy will help make it easier for them to create more jobs despite the fact that the data doesn’t seem to support this as an effective strategy.

As such, I think it’s at least worth pointing out that the consumer side of the economic feedback loop is just as important as the business side of the equation; and as the article argues, any remotely successful plan to spur job growth can’t afford to ignore working-class consumers in favour of businesses since demand is ultimately determined by the consumptive power of the working class itself. From this perspective, it’s easy to argue that either a lack of supply or a lack of demand (underconsumption) is the cause of our current economic woes, which in turn prompt measures to either stimulate supply or consumption. The former through things like tax breaks for businesses and the wealthy that ‘trickle down’ into more supply and jobs, stimulating consumption, and the latter through things like tax breaks or higher wages for workers that help stimulate consumption, thereby increasing demand and jobs.

But that’s only part of the story. What’s missing from this analysis are deeper problems that are embedded within the economy itself, which not only induces economic crises and downturns, but also prevents solutions like simply lowering taxes or raising wages from working—the problems of overaccumulation and the tendency of the rate of profit to fall.

The basis of our economic system is relatively simple. On the one end, money is invested as capital (to purchase equipment, raw materials, labour, etc.) to produce commodities that are then sold for a profit. On the other, the majority of those commodities are purchased by the people employed to produce them, the working class. Jobs, then, are created in the flux of this symbiotic relationship between supply and demand. If investors don’t have the money to invest as capital, then supply is reduced, the economy slows, and jobs can’t be created. If consumers can’t afford to purchase goods, then consumption is reduced, the economy slows, and jobs can’t be created. Ideally, supply and demand should be in equilibrium.

Within this process of transforming money into commodities and then back into money plus a surplus (profit), however, there are a number of contradictions that give rise to imbalances and crises of overaccumulation. And when due to these, both the mass of superfluous (i.e., unproductive) capital and labour increase in conjunction with technological advances and efficiencies in production, they cause the rate of profit to fall and a shrinkage in the absolute mass of profit produced. Moreover, if the rate of profit in that process falls to a certain level, preventing money from being able to be transformed into money plus a surplus, then both supply and demand are reduced, and as a consequence, employment, which feeds back into the downturn.

In essence, when accumulation is too high and the market is flooded with devalued capital that prevents its reinvestment from producing sufficient returns and/or goods that can’t be sold, the economy stalls. If profit can’t be realized, then capital can’t function as capital and it sits unutilized. To get things started back up, both employers and the state look for find ways to overcome this problem, whether through encouraging debt spending by consumers, the opening of new markets for export, the ‘creative destruction‘ of superfluous capital (mostly through state consumption), or creating ways to increase the mass of profit via evolutions (i.e., innovations) in the means of production and finance that, in turn, set up the conditions for further overaccumulation and crises.

The post-WWII boom is a case in point. People (especially on the left) often like to point towards this snapshot in history as an ideal time, an economic golden age, noting the fact that taxes on the wealthy were high and so was employment, wages, and economic growth. What those same people may not realize, however, is that the massive destruction of superfluous capital (as well as the industrial centres of Europe and Asia) caused by the war paved the way for the US’s growing prosperity following the Great Depression, which was arguably caused by a crisis of overaccumulation and the subsequent over-indebtedness and financial speculation utilized to bolster consumption and profits. In other words, it wasn’t simply an issue of taxes and wages being just right, but Washington’s consumption of unproductive capital and labour through the war economy and the increase in exports that resulted from the actual destruction of Europe and Asia’s means of productions.

The inconvenient truth of capitalism is that crises arise naturally and are needed to help destroy unproductive capital, whether through businesses failing, the depreciation of existing value/wealth, wars, or whatever, clearing the way for the creation of future value/wealth. This, in turn, creates a decrease in the labour force (i.e., unemployment of productive labour) that helps drive down wages, allowing capital to temporarily increase nominal profits even if the tendency of the rate of profit falls in the long term. And since it appears on the surface that either a lack of supply or a lack of demand is the problem, the role that crises play in acting as what Marx calls a ‘counteracting factor’ is obscured.

The way I see it, this obscuration is one of the things that make capitalism appear like a perpetual growth/profit-making machine, as well as more stable than it truly is. This is somewhat similar to Chris Harman’s take on the TRPF, i.e., that crises are the prime counteracting factors mentioned by Marx, with recoveries being limited in effectiveness over time due to a combination of things like units of capital become larger and more interlinked (the bigger they are, the harder they fall) and increases in the level of unproductive labour in both the private and public sector (the former due to capital attempting to defend and expand markets in unproductive ways, waves of speculative investments, top-heavy corporate hierarchies, etc.; the latter due to government spending via the military, stimulus measures, etc.).

The true limit to crises as a counteracting factor, however, may be labour itself, specifically labour time, which capital tries to increase in order to extract more profit from the labourer in order to compensate for a falling rate of profit and the fact that much of this labour is itself superfluous, i.e., labor time that “consists in the production of values that do not reenter the capitalist reproduction process” (Re: The People). But a person can only work so much, and if the labour itself is ‘unproductive,’ increasing it only serves to lower the rate of profit in the long term. This, as a consequence, creates the conditions for future (and potentially more severe) crises. One possible solution on the road to a post-capitalist society, then, may actually be an overall reduction in hours of labour.

The real question is how this society of minimal hours of labour and maximum hours of leisure can be achieved, which, under the logic of capitalism, it can’t, since this is the point where surplus value is created and realized by capital, i.e., a reduction in labour hours under capitalism will ultimately serve to reduce the mass of surplus value (and with it profit), which, according to the labour theory of value, is itself intimately tied into the amount of labour time required for the production of commodities. Simply socializing aspects of capitalist production, such as finance, while ignoring the process of production itself won’t get rid of the “coercive pressure of competition and accumulation” inherent within capitalism, and hence can’t full transcend it or its limitations.

We’re currently experiencing the effects of yet another economic slump, which in my opinion is almost certainly caused by a crisis of overaccumulation and the subsequent over-indebtedness and financial speculation utilized to bolster consumption and profits. And while from a progressive standpoint higher taxes on businesses and the wealthy may help to consume some of this unproductive capital, which in turn can be used to subsidized social safety nets for struggling workers, it’s not enough to fix the problem. Employment may rise, and the economy may continue to grow; but the cycle of crises and the pain they cause will continue either way.

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