[Review] Stephan Schulmeister - The Road to Prosperity - From Depression to Prosperity and back

Siehe auch:
[Rezension] Stephan Schulmeister - Der Weg zur Prosperität - Von der Depression zur Prosperität und zurück

Stephan Schulmeister is an economist and lawyer from Austria who has little in common with the economically liberal so-called Austrian school. The economist born on August 26, 1947 was a research assistant at the Austrian Economic Research Institute (Österreichisches Institut für Wirtschaftsforschung/WIFO) for forecasts, economic development, financial markets and international trade from 1972 to 2012. The focus of his work is on the conflicts of interest between employees, employers from the real economy and the financial markets or financial capital.
According to Schulmeister the orientation of the economic order fluctuates permanently between real capitalism and financial capitalism. Long upswings are caused by an alliance of interests between employees and real capital and long downswings are caused by an alliance of interests between real capital and the financial markets or financial capital.

The two key aspects of Schulmeister’s 2018 work "The Road to Prosperity" are the shift in the rules of the game and the organized counter movement. Schulmeister describes how the Great Depression of 1929 necessitated a new policy approach and details the success of that policy. In doing so he traces developments from the oil crises of the 1970s through to the present day. He also outlines the macroeconomic changes that have occurred and the consequences resulting from them.

From the Great Depression to Prosperity
The Misunderstood 70s
Back from prosperity
The Change in Rules of the Game

From the Great Depression to Prosperity

Schulmeister uses the Great Depression of 1929 as a starting point. Austerity and wage cuts were seen as solutions. Austerity stems from the assumption that government deficits are always bad. However a government deficit is a surplus for private households and businesses, and vice versa. The assumption behind wage cuts is that the demand for labor rises when the price of labor—wages—falls. Yet wages are not merely costs for businesses they are constitute revenue for other businesses. Consequently the responses to the Great Depression—austerity and wage cuts exacerbated the crisis rather than improving the situation. [1, p.61-63]

As a former stock market speculator John Maynard Keynes understood the origins of the Great Depression and the failure of the measures implemented at the time. Serving as an advisor to U.S. President Franklin D. Roosevelt (D) (1933–1945) Keynes helped shape the New Deal which led the United States out of the Great Depression. He achieved his definitive breakthrough and gained worldwide recognition with the 1936 publication of "The General Theory of Employment, Interest and Money". The key features of Keynesianism applied at the time were a focus on demand, state regulation of currencies (balancing foreign trade and current accounts through regulated exchange rates), and the significance of uncertainty. However Schulmeister also notes that Keynesianism later evolved into or was reduced to Neo-Keynesianism, focusing primarily on crisis interventionism. [1, p.63-70]

[2, ZUTN] [2, ALCD0]

During the final two years of his life, from 1944 to 1946, Keynes devoted himself to establishing the Bretton Woods international monetary System and its associated exchange rate regime (1944–71). Under the Bretton Woods System and its exchange rate regime, imbalances in foreign trade and current accounts as well as currency speculation were prevented, and interest rates remained below the rate of economic growth.
However Schulmeister also notes that Keynes was ultimately unable to secure the adoption of a supranational global currency (the "bancor"). The aim of this proposal had been to prevent currency speculation and imbalances in foreign trade and current accounts. Instead the US dollar became the anchor currency. The era resulting from these policies is regarded as the "Golden Age of Capitalism" (1944–71). [1, p.70-74]

The Misunderstood 70s

Schulmeister describes the shift in the economic order as a consequence of and a reaction to crises. Policy recommendations created problems they could not solve, and those responsible failed to recognize their own role in the situation. Two (oil) price shocks (1973 and 1979) led to two recessions in the wake of which Keynesianism was deemed to have been disproven. This was followed by a policy of sharply high interest rates and an approach to combating unemployment that was "consistent with theory" relying on wage restraint, cuts to unemployment benefits, and the weakening of employee protections. However this increased unemployment rather than reducing it. Added to this were the liberalization of financial markets and the collapse of the Bretton Woods exchange rate regime (1944–71). [1, p.104-111 , p.193-197]

Milton Friedman’s theory of the natural rate of unemployment is another element in the "theory-consistent" approach to combating unemployment. According to this the unemployment rate is determined by supply and demand and the best way to combat unemployment is by curtailing worker protections or cutting unemployment benefits. The price of labor in the form of wages is then supposed to regulate the demand for labor. In reality however wages represent costs for some companies and revenue for others consequently lowering the price of labor (wages) merely reduces demand thereby driving up the unemployment rate. And the natural rate of unemployment is defined as the level at which the bargaining power of the workforce is not excessive, thereby keeping the inflation rate in check. The aim is to maintain an unemployment rate that is sufficiently high or at least not too low to prevent workers from making excessive wage demands that would cause inflation to rise too sharply. [1, p.92-93]

The two (oil) price shocks (1973 and 1979) led to higher import costs particularly for energy imports. These increased costs were inevitably passed on to all goods and services requiring energy imports or in other words to everything. However central banks sought to combat the rising inflation rate by raising interest rates. This only exacerbated the economic consequences of the (oil) price shocks. Rising import costs specifically for energy imports cannot possibly be combated by raising interest rates. [1, p.104-111 , p.193-197]

[2, ZCPIN] [2, ISN]

The new dominance of the new economic liberals was subsequently established with the elections of Margaret Thatcher (Conservative) in 1979 and Ronald Reagan (R) in 1980. This new dominance was further reinforced by the establishment of corresponding theories, such as the theory of rational expectations (Lucas, 1995), real business cycle theory (Kydland & Prescott, 2004), and the efficient-market hypothesis (Fama, 2013). From this situation a dynamic emerged in which the newly established theories influenced policy while policy in turn laid the groundwork for further theoretical development. [1, 113-122]

Den neoliberalen Ökonomen ist es trotz der hervorragenden Performance der keynesianisch-realkapitalistischen Spielanordnung in der Prosperitätsphase gelungen, ihre Weltanschauung durchzusetzen.
...

Despite the outstanding performance of the Keynesian real-capitalist institutional framework during the period of prosperity, neoliberal economists succeeded in imposing their worldview.
... [1, 116]

Back from prosperity

Since the 1970s the real interest rate has more frequently exceeded real GDP growth. The real interest rate is the interest rate adjusted for the inflation rate. And real GDP growth is GDP growth adjusted for the inflation rate. The difference between the two represents the economy wide yield. This does not mean that no investments are profitable anymore as not all investments generate the same profit. However it does mean that the economy wide yield has more frequently been negative since the 1970s. [1, p.132-141 , p.193-197 , p.247-251]

[2, OVGD] [2, ISRV]

The real interest rate represents the real return for lenders and the real cost for borrowers. Consequently the level of the real interest rate directly influences investment behavior within an economy as companies when calculating investments must finance projected interest costs out of projected real returns. An excessively high real interest rate therefore dampens investment and thus GDP growth. This dilemma gives rise to a situation in which the conflict between real capital and labor is overlaid by the conflict with financial capital. [1, p.132-141 , p.193-197 , p.247-251]

" The drive of real capital to generate income and expand manifests itself in goods markets through production, trade, and investment. Profit is derived from the creation of wealth. "
" The drive of financial capital to generate income and expand manifests itself in financial markets through the holding of financial assets or "rapid" trading. Profit is derived from valuation differences and fees for the use of existing assets. "
" The drive of labor to generate income and expand manifests itself in the production of goods and services; its remuneration is derived from the creation of wealth. "

[1, p.133]

According to Schulmeister unemployment and public debt are two separate problems for Mainstrem economists. The demand for labor manifested as unemployment depends on the price of labor or wages. And national debt is the inevitable consequence of excessive social spending, the state overstepping its bounds, or an inefficient bureaucracy. The only alleged remedies for both are structural reforms, deregulation, and a scaling back of the welfare state. But according to Schulmeister however both will be dampened by the shift due to profitability towards financial investments. [1, p.190-207]

Overall this has resulted in a significantly altered order for most economies, both internally and in their relations with one another. The exchange rate regime of the Bretton Woods System (1944–71) was dismantled. The wage share has fallen, and the unemployment rate has risen. The real interest rate frequently exceeds real GDP growth, and the economy-wide yield is consequently more often negative.

And it is this altered economic order that leads to a shift in dynamics.
Countries' foreign trade and current account balances are no longer in equilibrium. Instead significant imbalances in foreign trade and current accounts have emerged. As a result countries with foreign trade and current account deficits are losing demand to other countries. [1, p.190-207]

[2, UVGD] [2, UBCABOP]

The corporate sector that is the aggregate of businesses within the economy has shifted from being a borrower to a saver. Previously the total expenditure of businesses exceeded their total revenue. Now the situation is exactly the reverse. In the past the corporate sector offset private household savings through investment and drove economic development by accumulating real capital. However corporate investment has since declined, and the sector itself has become a saver. [1, p.190-207]

[2, UVGD] [2, UBLC]

This leaves the government sector within national economies as the remaining one to drive demand. When faced with corporate sectors that have become net savers, only the foreign trade and current account balances along with the government sector remain to offset the saving by the corporate and household sectors. If an economy also runs foreign trade and current account deficits, then the government is the only entity left to generate demand. Consequently economies with foreign trade and current account surpluses are underpinned by the government deficits of other countries. Thus government deficits and rising public debt are not the result of a lack of discipline or of living beyond one's means, but rather the result of the altered economic order. [1, p.190-207]

[2, UBLGE]

...
Die "Keynesianer" hingegen schaffen es trotz der miserablen Performance der neoliberal-finanzkapitalistischen Spielanordnung nicht, eine alternative Theorie zu entwickeln.

...
The "Keynesians" on the other hand, failed to develop an alternative theory, despite the dismal performance of the neoliberal finance-capitalist order. [1, 116]

The Change in Rules of the Game

According to Schulmeister the shift from an order based on industrial-capital to one based on finance-capital is no coincidence. Instead both regimes pave the way for their own decline and thus for the transition to the other. Typical measures associated with the finance-capital order such as wage cuts to combat unemployment, or austerity exacerbate a crisis rather than alleviating it. Conversely the success of the industrial-capital order erodes returns on finance-capital and poses a threat to industrial-capital itself, thereby generating opposition to the regime. Schulmeister uses this theory to explain the boom period of 1848–1873 as well as the subsequent upswing of the Belle Epoque (1890–1914).
According to Schulmeister the prerequisites for a shift in the regime are a severe crisis, an organization to advance the relevant interests, and a roadmap for navigation. At the same time however it is assumed that economic development is shaped by technological innovations (e.g. the steam engine, the railway, the transistor, etc.). In the long run these two developments overlap. [1, p.141-147]

Preview:

Src:
[1] Stephan Schulmeisters Buch - Der Weg zur Prosperität- ISBN 978-3711001481
[2] AMECO - annual macroeconomic database / jährliche makroökonomische Datenbank
https://economy-finance.ec.europa.eu/economic-research-and-databases/economic-databases/ameco-database_en
[3] Welche Aufgaben kommen für die Sozialdemokratie? Schulmeister und Max Lercher 2018-05-07
https://youtu.be/iJzheZwCtV0
[4] Der Weg zur Prosperität Stephan Schulmeister Buchvorstellung WU in Wien 2018-06-08
https://youtu.be/_s2SJIKk204
[5] „Wir sind in gefährlicher Nähe zu den 1930er-Jahren.“ Stephan Schulmeister im Gespräch 2018-06-18
https://youtu.be/tL0kaHQTByA
[6] Stephan Schulmeister - Europas Weg in die Krise und zurück zur Prosperität 2018-06-22
https://youtu.be/cKy4Y5Zk8ig
[7] Märkte als Religionsersatz? | Stephan Schulmeister bei quer.denken. 2019-02-07
https://youtu.be/EUCGzOkfBtc

Einfache Standards

Dieses Blog durchsuchen