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NYU’s Nouriel 'Dr. Doom' Roubini: ‘Karl Marx Was Right’
There's an old axiom that goes "wise is the person who appreciates candor almost as much as good news" and with that as a guide, place the forthcoming decidedly in the category of candor.
NYU Economics Professor Nouriel "Dr. Doom" Roubini said unless there's another round of massive fiscal stimulus or a universal debt restructuring, capitalism will continue to experience a crisis due to a systemic flaw first identified by economist Karl Marx more than a century ago. (REUTERS/Mike Segar) Economist Nouriel "Dr. Doom" Roubini, the New York University professor who four years ago accurately predicted the global financial crisis, said one of economist Karl Marx's critiques of capitalism is playing itself out in the current global financial crisis.
Sees Marx's Critique Playing Itself Out Now
Marx, among other theories, argued that capitalism had an internal contradiction that would cyclically lead to crises, and that, at minimum, would place pressure on the economic system.
Companies, Roubini said, are motivated to minimize costs, to save and stockpile cash, but this leads to less money in the hands of employees, which means they have less money to spend and flow back to companies.
Now, in current financial crisis, consumers, in addition to having less money to spend due to the above, are also motivated to minimize costs, to save and stockpile cash, magnifying the effect of less money flowing back to companies.
"Karl Marx had it right," Roubini said in an interview with wsj.com. "At some point capitalism can self-destroy itself. That's because you can not keep on shifting income from labor to capital without not having an excess capacity and a lack of aggregate demand. We thought that markets work. They are not working. What's individually rational...is a self-destructive process."
Roubini added absent organic, strong GDP growth -- which can increase wages and consumer spending -- what's needed is large fiscal stimulus, agreeing with another high-profile economist, Nobel Prize-winner Paul Krugman, that, in the case of the United States, the $786 billion fiscal stimulus approved by Congress in 2009 was too small to create the aggregate demand necessary to advance the U.S. economic recovery to a self-sustaining expansion.
Absent additional fiscal stimulus, or unexpected strong GDP growth, the only solution is a universal debt restructuring for banks, homes (essentially households/families), and governments, Roubini said. However, no such universal restructuring has occurred, Roubini said.
Without that additional fiscal stimulus, that lack of restructuring has led to "zombie houses, zombie banks, and zombie governments," he said.
No Good Choices Outside of Fiscal Stimulus or Debt Restructuring
The United States, Roubini said, can in theory: a) grow itself out of the current problem (but the economy is currently growing too slowly, hence the need for more fiscal stimulus); or b) save itself out of the problem (but if too many companies and citizens save, the flaw Marx identified is magnified); or c) inflate itself out of the problem (but that has extensive collateral damage, he said).
However, Roubini said he did not think the U.S. or the world are now at the point where capitalism in self destructing.
"We're not there yet," Roubini said, but he did add that the current trend, if it continues, "runs the risk of repeating the second leg of the Great Depression" -- the 'mistake of 1937.'
In 1937, President Franklin D. Roosevelt, despite the fact that the first four years of massive New Deal fiscal stimulus had lowered U.S. unemployment from a staggering 20.6 percent during the Hoover Administration at the start ff the Great Depression, to 9.1 percent, felt pressure from Congressional Republicans, and he -- as current President Barack Obama did with the Tea Party-led House GOP in 2011 -- gave-in to conservatives and cut government spending in 1937. The result? U.S. unemployment started rising again, and hit 12.5% in 1938.
Cutting government spending prematurely hurt the U.S. economy in 1937 by reducing demand, and Roubini sees the same pattern playing out today, following austerity measures implemented by the U.S. debt deal act.
Economic Analysis: Roubini identifies the core problem of the current U.S. economy in laser-like fashion. It's a riveting interview that one can watch in full by clicking here.
Roubini also argues that the social uprisings in Egypt and in other Arab world countries, in Greece, and now in the United Kingdom, are economic in origin (primarily unemployment, but also, in the case of Egypt, due to the rising cost of living).
Further, the view from here argues that while no one should expect an 'imminent collapse' of capitalism, or even a collapse of the American version, corporate capitalism -- capitalism and free markets are much too nimble and capable of adapting for that -- to say that the current economic order is not experiencing a crisis would not be accurate.
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105 Comments so far
Show AllThe last paragraph is a cop-out. He probably inserted it because he was being interviewed by the WSJ.
I disagree strongly. Serious problems do not mean an end or collapse of capitalism. I don't recall you making any such wild statements in the past, but perhaps I missed them. Personally, I was delighted to see this excellent interview a couple of days ago. Roubini's thoughts are generally less noticeable on the internet sites I browse.
I share your opinion of Roubini's comments in general. My point was that the last paragraph differs markedly from the rest of the article. Perhaps the writer edited Roubini's comments to get what seemed to be a good concluding paragraph.
If capitalism is 'much too nimble" for collaspe, then where is the flaw in capitalism? ...to me it sounds like he contradicted himself at the end....
So many economists have been saying this for the past four years! ...
Congress has too few members who actually understand economics. Many have shown their prowess as "businessmen" and are therefore convinced that they understand macroeconomics and international trade dynamics. ...
Additionally, it seems to be difficult for Congress members to accept large campaign contributions from wealthy families and corporations without being heavily influenced by their viewpoint on political economics. (No real surprise there; except when considered in contrast to the way politicians -- especially President Obama -- show an amazing alacrity for accepting millions of small donations from average wage earners and then blithely ignoring the best interests of those folks.) ... So here's another example of the majority of experts agreeing on (1) the existence of a problem, (2) the cause of the problem, & (3) the most effective ways to deal with the problem -- yet nothing gets done because the status quo must be maintained even if the whole world be in danger. ... Economics, global climate change, cosmology, the evolution of plants and animals; It's all the same. If it cannot be explained in a catch phrase by the likes of Sarah Palin, Michelle Bachman, or Rick Perry then the "pointy-headed intellectuals" will be ignored or shouted down.
There you have it defined in one paragraph. All problems are the same problem...
and you think the Tea Party folks are simple minded?!
Simple phrase, simple observation by a simple progressive mind. We just need more community organizers.
From the article: "no one should expect an 'imminent collapse' of capitalism, or even a collapse of the American version, corporate capitalism -- capitalism and free markets are much too nimble and capable of adapting for that'
Yeh, "nimble" provided they get an infusion of nearly a trillion dollars in direct bailouts and trillions more in interest free loans from the Fed.
What nonsense.
If Roubini actually said that, my respect for him just went down by several orders of magnitude (factors of 10)
Marxism is not the answer. Ask any Soviet. The obvious answer is a hybrid of all 3 major influences.. the reward for hard or smarter work in capitalism, the sharing of communism, and the logical family attitude of socialism which guarantees a minimum for every member of society.
Note that whatever you give to the criminals in jail (health care, a small space out of the elements, etc.) is by definition the barest minimum for all family members.
Marxism was not the problem....Communism, the way it was structured WAS the problem. Read Orwell's 'Animal Farm' for a thumbnail of the way it worked. The Party Bosses let their personal greed get in the way.
I’ve read it. Good book! But a hybrid is still the answer IMHO :)
We already have a hybrid system. It is not working in it's current form. And it will continue to falter. We have become too efficient to have the unemployment numbers of the past--at least at our typical 40-60 hour work weeks. And even many of the jobs people do have--dog walker, interior designer, day trader, etc.... are worthless--they create nothing. I think if corporations get seriously reformed we will solve most of our problems(problems aside from the deterioration of the character of Americans). Like have a universal chartering bureau/commision--whatever we call it that central grants all charters for corporations that want to do business in the U.S.. No more offshore/Delaware/Nevada crap--even if you are a company based in another country you have to comply with our Charter Commission if you wan't to sell anything here.(This part is absolutely necessary because obviously corporations would just register somewhere else--but it will work because they will have to comply because if you wan't to make any money you need the American market--we spend more than everyone else). The rules of the charter would be something like this(these are just of the top of my head--if you have suggestions great);
1. 25 to 1 pay ratio(full time employee's) So if the janitor is making $16,000 a year, the CEO can only make $400,000 a year which includes all perks and benefits(stock options, travel, etc....)
2. Shareholders are held liable for the activities of the corporation. Such as the corporaton gets sued for whatever, the stockholder will have to pay his percentage. Ex; If stockholder owns 100 shares and there are 1000 shares outstanding, they will have to pay 10% of the settlement.(Stock holders will not be criminally liable, unless of course it is proven they were aware of the crimes, or committed, or abetted in the crimes.)
3. If a stockholder sells their shares in a corporations--here is the tax structure for their profits:
50% if they held it less than a year.
40% if less than 2 years.
30% if less than 5 years.
20% if Thereafter.
3. All corporations that wish to sell or produce goods or services in this country will conform to the rules of this charter. (So as not to promote “Delaware’s” or “Cayman Island’s”)
4. Any corporations found to not be operating under the rules of this charter are subject to revocation of their charter and the subsequent liquidation of all assets. Lesser penalties include, but are not limited to all profits for an undetermined amount of “probationary” time to be donated to the “not sure yet—but I like the idea of a public official election fund. Wherein, all persons running for office are limited to the exclusive use of money from this fund—ex: 1,000 for mayor of a town with less than 2,000 residents, or 30,000 to a person running for a state house seat, or 1 million to a person running for president in the primaries”
5. If a corporation is found to be complying with the laws of this charter, but not adhering to the “spirit” of the charter’s intention, they can be found by the “CCC”(Corporation Charter Committee—elected officials that will serve 6 year terms and can be reelected that are not able to ever(their whole lives—they could of worked for one in the past) hold any interest whatsoever (Job, stock, advisor, etc…) in a corporation) to be in violation of the law and thereby have their charter revoked or be placed on probation.
What do you think?
Also written into the charter would be mandatory compliance to environmental laws and workplace safety laws. Union harassment would be cause for revoking the charter.
Thanks for your comments James. You’ve got some interesting ideas. And you’re right about it being a hybrid already, but as we both know, it’s very sick. You asked my ideas for improvement?
The first problem is people lack basic minimums for a decent life. Everyone that wants a job should have one. The minimum wage needs to be at least doubled so it’s a living wage. Until we have the industry jobs we create massive public works programs. We also start massive training programs for an army of new doctors and clean energy scientists. This leads to universal health care and a cleaner planet. We bring most of our regular army home.
We have the way to pay for it by taxes. This is done with a Fixed Sliding Scale Income Tax with no deductions allowed. The following is not exact, just numbers to convey the idea in principle. If you make minimum wage you pay zero. You make $50,000 you pay 1%. If you make $60,000 you pay 2% on the extra $10,000 above $50.000. Pay 3% tax on the next $10,000. Pay 4% on the next $10,000. Etcetera. Something like that. By the time you get to X dollars, whatever number is fair, you keep nothing over that. This is off the top of my head, but you get the gist of it.
As for the bitching the billionaires would do. They can go to hell. I’d like to see one of these mutts justify why he was worth 100,000 times more a year than his honest, hard working neighbor. They make it with our help, directly or indirectly, and it’s unfair to have king versus slave type disparity. This would also result in less incentive to rape the planet, which is the next big problem to address.
jamest168,I like your list so far. Maybe this should be added to it: a time limit. Corporate charters were initially granted for a specific purpose, and for a prescribed duration of time. It seems to me that one of the things that could lead to corruption is corporate "immortality". If dissolving an otherwise law abiding and useful business organization would be too onerous, then at least a periodic review or re-application (every 10 years?) of the corporate charter would be in order. (Although, come to think of it, this might, by itself, lead to opportunities for corrupt public officials to extract bribes from (otherwise decent) corporations.)
Stalinism was a perversion of Maixsm. Capitalism does contain the seeds of its own destruction. But it takes time. People have to be ABLE to buy back what they produce.
karl marx was a philosopher. blaming him for the control-freak-communist-commitee of self-promoting men who lorded it over the people, is not unlike blamining jefferson, franklin, washington, paine and allan because we have a democracy of the corporations, by the corpoations and for the corporations. should we blame the "leaders" for securing their own place in history or did we the people drop the ball? ..
Primarily Marx was an economist (and a mathematician), then a political scientist and historian -- and then a philosopher. His primary work was not about socialism, but capitalism -- hence the title of the book(s): "Capital". Marxism is economic theory.
It is interesting that Marx apparently never used the words "capitalism" or "capitalist" himself. As an economist and historian he was primarily interested in who controls what he called "means of production" and how that control changed hands throughout history. From what I understand of his writings he seemed to have included "means of distribution" within "means of production". I have never found in his work a reference to "publicly owned means of production/capital" and yet is that not what our streets, roads, bridges, tunnels, airports, harbors, a.s.o., a.s.o. are?
Please don't be offended, but you have been greatly misinformed about Marx. If you are curious (and patient) I'd recommend picking up a good summary of Marx and reading it- its well worth the time once one begins to "get it." He speaks extensively of capitalism, capitalists, and public infrastructure. In fact, his writing on infrastructure is essential to understanding one of his most important contributions to economic theory, his Theory of Rent. In order to maintain the circulation of capital and preserve the accumulation of surplus value for the capitalist class, investment in infrastructure projects (particularly transport) is essential to equalizing the rate of profit between differing geographical locations (see Grundrissee pages 524-539 and Capital Volume 1 page 249 and 384). Because individual capitalists would not take the risk of location-based devaluation upon themselves (ie, the possibility of a loss of value in a fixed asset like a road or train tracks), these risks are socialized by passing the costs along to government which pays for them with taxes. Thus capitalists reap the increased surplus value (ie, profit) from the efficiencies created by public infrastructure, while the risks and costs associated with these major investments are passed along to the other social classes (ie workers) through taxation. Its all part of the exploitation of labor by capital-- the Greatest Ponzi Scheme of All.
Bingo.
Corruption (greed) is not a stranger to communism or capitalism. Everyone here seems to be able to identify at least a portion of the problem. The inequality does exist, and will continue to exist under any combination of economic systems. Unfortunately, it does not appear to be an understandable science. The invisible hand also exists, and trying to understand how it moves has provided a steady income for several generations of equally perplexed economists. The political blame game is most effective when one assumes an adversarial approach. Higher ideals of work ethic, honesty, service and integrity are usually not included in the political discussion. The underlying problems do not go away by legislative action. In other words... we can never solve the problem from a governmental approach using a worldly perspective.
My answer to your next question will not compute in your paradigm.
"the sharing of communism"
It's a common misconception, but there is no doctrine of "sharing" in Marx's work. Instead, there's a structural change in the ownership of capital (in 19th Century terms, the "means of production"), which in itself changes the nature of capital distribution. No one is sharing, they are getting paid for there labor, something that everyone should be able to support.
^^^^^^^^
THIS
I assume the above comment is a compliment of the previous (well taken) comment? I interpreted it as "[expletive] THIS".
It is positive. :~D
Define Marxism.
Go ahead. If you know that it is not the answer, surely you can define it clearly, and explain clearly why it is not the answer.
"Marx's contribution was his analysis of Capitalism. "
That would make him a marxist. At least one type of marxist.
Yea, but Denruter's comment goes to the realization given by Dave Gresham that there is a common view of "Marxist" equated with the old Soviet Union. Hopefully many here realize Marx in a different light, which is why Marx would almost certainly be compelled to declare, I am not a Marxist! Sad, isn't it, that Marx is so misperceived by so many that any mention of anything related to him ends up diminishing the dialogue?
Marxism was not the problem....Communism, the way it was structured WAS the problem. Read Orwell's 'Animal Farm' for a thumbnail of the way it worked. The Party Bosses let their personal greed get in the way.
>>Marxism is not the answer. Ask any Soviet. <<
Not to put too fine a point on it, but when, exactly, did the Soviet Union attempt to implement Marxism?
"Note that whatever you give to the criminals in jail (health care, a small space out of the elements, etc.) is by definition the barest minimum for all family members. "
Well said. If whatever the economic system is called isn't doing this, then there is a problem. However, so much of the world has lived in sub-standard conditions for so long, the only way we can "compete" with them is to join the third-world.
The solution is arguably to raise the lowest rather than lower the best off. However, does the planet have the resources for that?
Capitalism is always in crisis. A ponzi scheme by any other name is still.......
indeed! check it out. capitalism crashes on average every 15 to 20 years. the orchestraters of each ponzi bubble pull out just in time to leave your 401k and mutual investors holding a empty bag. don't fret, there's a new bubble on the rise!
i think this time it's in china or india 'cause we're pretty much maxed out on credit and "nothin' from nothin' ain't nothin'!"
Let's grant that Marx was indeed right regarding the economic structures at work within capitalism, i.e., that they will eventually self-destruct. In and of itself, that thesis does not bother me in the least. I have been familiar with it for decades.
What bothers me is that Roubini still seems to leave the ecology of Earth and the fact that it has finite resources, and that that fact makes an economy of constant growth (whether of the capitalist or socialist variety) unsustainable in the long run, out of the picture.
At this point in the history of industrial societies, the central issue is no longer economic: it is ecological. Any economic analysis, whether bourgeois or Marxist, that ignores that is just another variety of economic autism.
i notice the omission of ecology from almost everyone's concern, too. i find it no inexplicable coincidence that loss of natural resouces and economic upheaval occur simultaniously.
SYNECOLOGY = WORD!
Marx himself pointed out that capitalism firstly is a system whereby resources are taken from the country to the cities and secondly capitalist industrialisation leads to the destruction of the environment.
Agreed. Having finite resources means their cost rapidly escalates. This puts extreme pressure on corporations to become large, to be the first down the learning curve, to reduce energy, labor and material costs, ignore pollution costs, and escalates the importance of vertical monopoly integration and tax havens, most of the toxic anti-regulation and anti-nature psychotic behaviour of corporations today.
Most economic theory, including Marx, treat the sources of raw materials and energy as essentially infinite, and put the limiting factors as being supply and cost of labor, and supply and cost of capital, that is machines used by labor. They concentrate on the money, like any corporation. That the economy is only a subset of our complex ecologic systems, dependent on the health of soil, air and water, and free access to it, completely escapes a lot of economic theory today. Most economic commentators ignore the disasters that come from economic growth.
A somewhat unfair caricature of Marx, I'm afraid.
Consider:
“Capitalist production … disturbs the metabolic interaction between man and the earth …. All progress in capitalist agriculture is progress in the art, not only of robbing the worker, but of robbing the soil; all progress in increasing the fertility of the soil for a given time is a progress towards ruining the more long-lasting sources of that fertility. The more a country proceeds from large-scale industry as the background of its development, as in the case of the United States, the more rapid is this process of destruction. Capitalist production, therefore, only develops the techniques and the degree of combination of the social process of production by simultaneously undermining the original sources of all wealth -- the soil and the worker." (Karl Marx, Capital, vol. 1, p. 638 Penguin Edition, 1976)
Thank-you. Marx was indeed a brilliant thinker.
It's obvious that you are unfamiliar with what Marx wrote. Go and study it, then come back and tell us what he missed.
I suppose a capitalist economist could plead sustainability here; that capitalism could expend indefinitely by creating rev-more desirable goods and services in some sort of circular manner with zero "externalities".
It'll never happen, but theoretically it's a defense.
"that capitalism could expend indefinitely by creating rev-more desirable goods and services in some sort of circular manner "
Unfortunately, it's all made of finite oil...
Economists and psychics have a great deal in common: 1) they all believe in impossible things and 2) it is likely that on any given day, some economist/psychic somewhere will have a "prediction" come true.
Of course, given the sheer number of predictions made by these folks, that is a virtual certainty.
And the ones who "get it right" are held up as soothsayers, when in fact, more often than not, they just got lucky.
Your comment is total bs. Absurd to the max. Real economists with objective viewpoints have developed models that work quite well to predict the consequences of various policies. Over the past decade I have noticed that some economists are highly adept at using these models to accurately predict the future. Of course there are a great many so-called economists who are worse than worthless.
Ha ha. Any economist would tell you are talking crap.
Part of the problem is that many economists do not study the economy; they study mathematical models of the economy. Like all models, the accuracy of their output depends on the assumptions made in creating them. For example, the reality of the interactions built into the equations. Considering how complex a national economy (much less the global economy) is, it is not surprising that while some predictions seem accurate, many others do not.
.
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For the last decade or two PhDs in physics have moved to Wall Street and have been involved in the model-building. The reasons are that there are many more physicists turned out each year than there are jobs for them, and the money is much better than at a university. The math iinvolved is trivial compared with what they are used to doing, so they dive right in . How much supervision in regard to economics they are given is not clear. If they know nothing about economics and their supervisors know nothing about the math, we have the blind leading the blind - at least until the physicists learn enough economics to build more reliable models.
Start with Krugman. Go to his NYT blog. On the right side of the page are links to Krugman's writings on issues of importance concerning today's economic problems. Look especially at his writings on macroeconomics and issues of liquidity trap. If you care to do the work you will see that these models have been performing very accurately in our actual situation .
"Real economists with objective viewpoints have developed models that work quite well to predict the consequences of various policies. Over the past decade I have noticed that some economists are highly adept at using these models to accurately predict the future."
I guess that's why the vast majority of economists (including the "Maestro" Greenspan) failed so completely to see the recent financial meltdown on the horizon.
The reality is, the "models" that nearly all of these folks were using failed miserably to predict anything even remotely resembling the reality that actually played out.
The Earth does not have finite resources. (Yes, I'm aware that viewpoint is very popular among some environmentalist circles) Regenerates at a rate slower than the current human usage rate, is not finite.
If you want to talk about "autism", I suggest you get over that basic flaw in your worldview first.
If you want to talk about time scales, talk to a geologist. The time scale for convective mass transfer in the earth's mantle (which moves tectonic plates around to build mountain ranges - and mineral resources) is about 100 million years.
For all practical purposes, that is infinite, so the resources we have today are indeed finite.
No they aren't.
Look at what you eat everyday. Hint, if the Earth were finite, none of us would be eating.