| Home | My photos | Forex | My trading | Contacts |
|
|
You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
|
If you believe that money and finance are somehow epiphenomenal of secondary importance to the real action of productionWhat is (not) to be done? After a long critique like this, the author must always be ready for the question, OK, so what would you do? The temptation is to dismiss it high-mindedly, saying theres a virtue to critique alone, but that would look too cowardly. Before approximating an answer, though, I have to say that reforms of the financial sphere are nowhere near as easy as is sometimes argued. If you believe that money and finance are somehow epiphenomenal of secondary importance to the real action of production, or bizarre malignancies that have somehow arisen on the economic body over the years then the path of action is a lot clearer. But Ive spent a lot of time arguing that this isnt the case. While finance is expensive and wasteful, profit always takes the form of money, capital yearns to be liquid and easily mobilized, and financial instruments are the means by which ownership and control are organized. If Negri is right, and he is, that money has the face of the boss, then taking on money means taking on the boss. It would be much easier if the populists and Proudhonists were right in arguing that money and credit are kept artificially scarce, and the generous provision of both would make life profoundly easier for most of us. But Marxs critique of Proudhon, like that in the Grundrisse, should chasten every financial reformer. Marx argued that changes in the instrument of circulation alone do not address the relations of production and distribution, because these relations are embedded in the very notion of money. The need for money makes workers work and capitalists compete; its not some quantity that comes from outside the economic system, but from deep within it. To be meaningful, any attack on the money system is an attack on the prerogatives of ownership and class power. Instead of socializing capital through taxation or some other form of expropriation, loose-money dogma simply reduces to a desire for loans on easy terms. The notion of crdit gratuit, incidentally, is only a hypocritical, philistine and anxiety-ridden form of the saying: property is theft. Instead of the workers taking the capitalists capital, the capitalists are supposed to be compelled to give it to them (Marx 1973, p. 123). Or in the case of the American populist, compelled to lend it on easy terms. While its certainly the case that the working class is better off with a central bank that targets a 5% unemployment rate than one that targets 6%, the differences are not that fundamental. Recently, weve seen a growth in calls for local moneys chits representing labor time that circulate in small towns alongside national money most famously the Ithaca Hours scheme in that town in upstate New York. Prospects for such schemes seem severely limited; at best, they seem applicable to haircuts, but probably not scissors, and certainly not raw steel. As soon as exchange breaks beyond the merely local, capitalist competition is certain to replace egalitarianism as the price-setting principle unless fundamental changes in ownership and the means by which enterprises relate to each other are made. Labour time cannot directly be moneyprecisely because in fact labour time always exists only in the form of particular commodities (Marx 1973, p. 168). The product of a barber cant be exchanged with that of an steelworker; they exchange as haircuts and metal, priced inevitably in money. The form of that money Ithaca Hours, Federal Reserve notes, or electronic blips may not be as important as people think. So any call for financial transformations has to be considered only as a part of a broader attack on the forms of capitalist social power. As this is written, that seems almost unimaginable. What once seemed like mild social reforms even the bare minimal aspects of a social democratic welfare state weve seen in the U.S. are viewed by our rulers as an intolerable trespass on their God-given rights. The intensification of the attack on the welfare state in the U.S. and Western Europe since 1989 has made it clear that the boss will grant such concessions only as long as theres a credible threat of total expropriation, which is what the USSR, for all its countless faults, always represented to them. As impossible as expropriation may seem today, it pays to remember the old slogan from Paris 1968: be practical, demand the impossible. In lieu of a 10-point recipe for social transformation, I offer a montage of critique and suggestion. First a look at a very bad idea; then a review of some mixed ideas; and finally a few more ambitious proposals. But first, its important to remember that not all attempts to rein in globalizing finance in the name of the local are politically progressive. Here, for example, is one writers view: Thus, the task of the state toward capital was comparatively simple and clear; it only had to make certain that capital remain the handmaiden of the state and not fancy itself the mistress of the nation. This point of view could then be defined between two restrictive limits: preservation of a solvent, national, and independent economy on the one hand, assistance of the social rights of the workers on the other. The sharp separation of stock exchange capital from the national economy offered the possibility of opposing the internationalization of the German economy without at the same time menacing the foundations of an independent national self-maintenance by a struggle against all capital. The development of Germany was much too clear in my eyes for me not to know that the hardest battle would have to be fought, not against hostile nations, but against international capital. That was Hitler (1943, pp. 209, 213), in Mein Kampf. One should always be careful of critiques of finance that stop short of being critiques of capital especially ones that focus on internationalization as an evil in itself.1 Social Security privatization: a truly horrible idea Nothing illustrates the severity of the attack on the welfare state better than the emergence into popular discourse in the U.S. of ideas about privatizing the Social Security system. Until quite recently described as the third rail of American politics touch it and you die magazines like Time and The New Republic and even a commission appointed by a Democratic president have signed onto a privatization agenda that was once an obsession of the libertarian right. When Barry Goldwater suggested in 1964 that Social Security be made voluntary, it was considered evidence of his madness; now, the National Bureau of Economic Research publishes howto papers (Kotlikoff 1995), and the media are doing the important work of selling the plan to the public. Since the idea probably couldnt be sold on its merits why destroy a system that is universal, successful, and deeply popular? it has to be sold deviously. At the core of the deception is the line that the system faces inevitable bankruptcy when the Baby Boomers begin retiring about 10 or 20 years into the next century. The official source of these projections is the annual reports of the Trustees of the Social Security System (Board of Trustees, Federal Old Age and Survivors Insurance and Disability Insurance Trust Funds 1995). As is common with such official efforts, the Trustees present three sets of projections, a gloomy one, an optimistic one, and a supposedly moderate one. Though there are a host of interrelated assumptions involved in each, the salient fact, buried in the reports tables, is that the Trustees assumed an economic growth rate over the next 75 years of 1.4% (down from 1.5% in the 1994 annual report) half the rate seen in the previous 75 years, and a rate matched in only one decade in this century (1910-1920). Even the 1930s saw a faster growth rate (1.9%).2 My own simulations, using higher growth rates, show that with more reasonable growth assumptions even a modest 2.0% growth rate, below the 2.3% average that prevailed between 1973 and 1995 the system is not facing insolvency. So either the Trustees are using deliberately bearish growth assumptions to promote public doubt of the system (a charge the Systems actuary, Steve Goss, strongly denies), or are foreseeing 75 years of depression ahead of us. Big news, either way. Brokers and insurance companies are taking conscious advantage of this uncertainty surrounding Social Security to try to snag new accounts. Adman Bill Westbrook told the Village Voices Leslie Savan (1996) that his research found that the growing public distrust of government meant a growing distrust that institutions like Medicaid or Social Security will be there to take care of people. His research also disclosed a growing sense of empowerment, the idea that Im a smart, capable person, and I can make my own decisions. Thus did Westbrooks agency, Fallon McElligott, come up with the Be Your Own Rock slogan for its client, Prudential, a company that, even as the new slogan was unleashed on the world, was under investigation in 30 states for widespread deceptive sales practices, including misleading consumers about the cost of the policies and churning of policies to generate new premiums and commissions (Scism 1996). Its all very surreal: the financial markets, characterized by nothing if not volatility and scandal, are portrayed as rock solid, and government, which has paid its pensioners without interruption and minimal scandal for over 60 years, is seen as wobbly. The privatizers model is the Chilean pension system, a creation of General Augusto Pinochets Chicago-school dictatorship. The model, touted by both the Cato Institute and the World Bank, is centered on a kind of compulsory IRA scheme, in which all covered employees put 10% of their earnings into one of several approved mutual funds, which invest their holdings in the stock and bond markets. (Employers were relieved of having to make a contribution.) The infusion of money has done wonders for the Chilean stock market, but projections are that as many as half of future retirees will draw a poverty-level pension. For those at the low end, there remains a minimal public pension check, which offers recipients the equivalent of under $2 a day (Collins and Lear 1995; Paul and Paul 1995; Frank Solowey, personal communication). Though proponents love to advertise efficiencies of privatized systems, the Chilean system is hardly a model. The competing mutual funds have vast sales forces, and the portfolio managers all have their vast fees. All in all, administrative costs for the Chilean system are almost 30% of revenues, compared to well under 1% for the U.S. Social Security system. Even the 12-14% average administrative costs for the U.S. life insurance industry look efficient by comparison (Diamond 1993). Finally, the economics of a privatized system, which is inevitably centered on plowing money into the stock market, are pretty dodgy. When questioned, flacks from the libertarian Cato Institute which is advised by the former Chilean cabinet minister who guided the transformation make two points: the historical returns on stocks are higher than the implied return on Social Security, and money put into the stock market will promote real investment. As weve already seen, financial theory cant explain stock returns very well (the equity premium puzzle), and virtually no money put into the stock market goes into real investment. When confronted with these details, Catos flacks sputter and mutter, but they have no solid answer other than to denounce the managerial skills of government bureaucrats. Flacks also profess great faith in the publics ability to manage its retirement portfolio, but even people with advanced degrees dont really understand the basic arithmetic of interest rates, much less the complexities of modern financial markets. Its a mystery why the stock market should do any better at solving the demographic problem of Baby Boomer retirement than the public system. Over the long term, the stock market should grow roughly in line with the overall economy; the only way it could greatly exceed the underlying growth rate is if the profit share of GDP were to increase continuously, or valuations were to grow to Ponzi-like levels. Historical return figures one of the privatizers favorite arguments assume that dividends and capital gains are re-invested, when in fact they will be drawn down to finance peoples retirements; for financing retirement, the stock market is like a giant revolving fund, much like the public system, that finances net sales by one set of parties with fresh purchases by another. Were the Boomers to start selling stocks to finance their retirement, prices would fall unless there was even more coming in from Generations X, Y, and Z. And of course any time between now and then, if one has the bad luck to retire in the midst of a bear market, then he or she may face a fairly miserable retirement. But the whole notion of private pension funds, either of the sort that prevail now or would prevail under a privatized system, depends on an economic illusion. In one of the more profound passages of the General Theory, Keynes (CW VII, pp. 104-105) made an argument that has been virtually lost to modern economic thought: We cannot, as a community, provide for future consumption by financial expedients but only by current physical output. In so far as our social and business organisation separates financial provision for the future from physical provision for the future so that efforts to secure the former do not necessarily carry the latter with them, financial prudence will be liable to destroy effective demand and thus impair well-being. Individuals may be able to set aside money for the future, but not a society as a whole; a society guarantees its future only by real physical and social investments. But the financial markets are demanding cutbacks in both public and private investment in the name of financial prudence. Today, anyone making an argument like Keyness at an American Economics Association meeting or on Crossfire would be regarded as insane. This is why you wont find anything in this chapter on the progressive use of pension funds. Peter Druckers fears of pension fund socialism of the 1970s have realized themselves in the portfolio manager capitalism of the 1990s which is no surprise, since its quite natural that capital should appropriate the pooled savings of workers for management. The whole idea of creating huge pools of financial capital should be the focus of attack, not the uses to which these pools are put. Instead of funding infrastructure development through creative pension-fund-backed financial instruments, finance it with a wealth tax instead. The lesson of the Swedish wage-earner funds should be chastening to pension-fund reformers (Pontusson 1984; 1987; 1992). The funds were originally conceived by social democratic economists as a scheme for socializing ownership of corporations. In the original mid-1970s proposal, firms would have been required to issue new shares, in amounts equal to 20% of their annual profits, to funds representing wage-earners as a collective. In the space of a decade or two, these funds would acquire dominant, and eventually controlling, interests in corporate Sweden. This idea scandalized business, which launched a great campaign to discredit it a task that was greatly simplified by the fact that the funds never attracted broad popular support. The Social Democrats and the unions watered the plan down, and a weak version was adopted in the early 1980s. The funds quickly began behaving like ordinary pension funds; their managers, in a vain attempt at legitimation, began trading stocks in an effort to beat the market averages. Eventually, late in the decade, the wage-earner funds were euthanized. Why did they fail? For at least two reasons. First, business correctly saw the initial version as a challenge to capitalist ownership, a reminder that finance is central to the constitution of a corporate ruling class. And second, they never attracted popular support essential to any serious challenge to a corporate ruling class because they were so abstract. As Pontusson (1992, p. 237) put it, when collective shareholding funds are reduced to deciding whether to buy shares in Volvo or Saab, its hard to muster popular enthusiasm. More direct interventions are required active public industrial policy and greater worker control at the firm level if ordinary people are to get interested. The stock market, on the other hand, is the home turf of financiers, and any games played on their turf usually end up being played by their rules. |
|
|||||||||||||||
Previous Issues
|
| ©2007 Olesia | Home • My photos • Forex • News • My trading • Contacts |