Conventional economics has failed, completely, utterly and totally

By Charles Hugh Smith   Article

Labor’s Dwindling Share of the Economy and the Crisis of Advanced Capitalism

All attempts to reform the Status Quo of advanced finance-based Capitalism will fail, as its historically inevitable crisis is finally at hand.It is self-evident that conventional economics has failed, completely, utterly and totally. The two competing cargo cults of tax cuts/trickle-down and borrow-and-spend stimulus coupled with monetary manipulation have failed to restore advanced Capitalism’s vigor, not just in America, but everywhere.

… what’s wrong with advanced Capitalism cannot be fixed by taxing the super-wealthy at the same rate we self-employed pay (40% basic Federal rate), though that would certainly be a fair and just step in the right direction. Advanced Capitalism’s ills run much deeper than superficial “class warfare” models in which the “solution” is to redistribute wealth from the top down the pyramid. …

The other political-economic strategy that has been used to stave off the crisis is consumer credit: as labor’s share of the economy shrank, the middle class workforce was given massive quantities of credit, based on their earnings and on the equity of the family home. …

The third strategy to stave off advanced Capitalism’s crisis was to greatly expand the workforce to compensate for labor’s dwindling share of the economy. Simply put, Mom, Aunty and Sis entered the workforce en masse in the 1970s, and their earning power boosted household income enough to maintain consumption. …

The fourth and final strategy was to exploit speculation’s ability to create phantom wealth. By unleashing the dogs of speculation via a vast expansion of credit, leverage and proxies for actual capital, i.e. derivatives, advanced finance-based Capitalism enabled the expansion of serial speculative bubbles, each of whcih created the illusion of systemically rising wealth, and each of which led to a rise in consumption as the “winners” in the speculative game spent some of their gains.

This strategy has also run its course, as the public at last grasps that bubbles must burst and the aftermath damages everyone, not just those who gambled and lost.

Two other essential conditions have also peaked: cheap energy and globalization, which opened vast new markets for both cheap labor and new consumption. As inflation explodes in China and its speculative credit-based bubbles burst, and as oil exporters increasingly consume their resources domestically, those drivers are now reversing.”

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