India-backed NA coming up as late as Sep 2009
http://www.guardian.co.uk/world/us-embassy-cables-documents/226531

"While far from perfect, you will find Zardari is pro-American, anti-extremist and eager to be seen as working with the USG."
http://www.guardian.co.uk/world/us-embassy-cables-documents/213170

"While the party had no grassroots supporters, its candidates in both 2002 and 2005 performed well due to their personal influence in their local areas."
http://www.guardian.co.uk/world/us-embassy-cables-documents/135859

"As he has before, Zardari stressed that the Global War on Terror (GWOT) was "Pakistan's war."
http://www.guardian.co.uk/world/us-embassy-cables-documents/156183

"The decision was no surprise; Zardari advised Ambassador weeks ago that he felt he had to move to rein in Nawaz (Ref ). However, in a phone call, Zardari--just back from his latest trip to China--told Charge February 25 that he had "nothing to do with the decision" and had been surprised by Shahbaz's disqualification. He noted that the Court had ruled against the government, which had been representing the Sharifs. He said he had ordered PPP Punjab Governor Taseer to temporarily take over the Punjab government until new elections for a Chief Minister could be held. He expected the PPP would have a candidate and thought the Pakistan Muslim League (PML) party would also be interested in running a candidate."
http://www.guardian.co.uk/world/us-embassy-cables-documents/193807

" There may be as many as 5000 such terrorist detainees currently in the custody of the Pakistan Army and Frontier Corps from operations in Malakand, Bajaur, and Mohmand. As operations in these areas and other parts of the FATA proceed, this number will increase."
http://www.guardian.co.uk/world/us-embassy-cables-documents/224469

"The Pakistani Army has for just the second time approved deployment of U.S. special operation elements to support Pakistani military operations. The first deployment, with SOC(FWD)-PAK elements embedded with the Frontier Corps in XXXXXXXXXXXX, occurred in September (reftel). Previously, the Pakistani military leadership adamantly opposed letting us embed our special operations personnel with their military forces."
http://www.guardian.co.uk/world/us-embassy-cables-documents/229065

"During Ambassador's fourth meeting in a week with Chief of Army Staff (COAS) General Kayani on March 10, he again hinted that he might, however reluctantly, have to persuade President Zardari to resign if the situation sharply deteriorates. He mentioned Asfundyar Wali Khan as a possible replacement. This would not be a formal coup but would leave in place the PPP government led by PM Gilani, thus avoiding elections that likely would bring Nawaz Sharif to power. We do not believe Army action is imminent. We do believe Kayani was laying down a clear marker so that, if he has to act, he can say he warned the U.S. in advance and gave us ample opportunities to pressure both sides to back down. Kayani is trying to leverage what he considers predominate U.S. influence over Zardari, instead of seeking a direct confrontation that could provoke an unhelpful civil-military clash... He told Nawaz that he would win the next election and should just be patient; by pressing now, he threatened a political vacuum that would be filled by the Army. This time, warned Asfundyar, Nawaz might not be sent into a comfortable exile. Nawaz refused to budge."
http://www.guardian.co.uk/world/us-embassy-cables-documents/196412

"General Petraeus raised the likelihood of an alternative shipment route for NATO through central Asia, stressed the continued need for the route through Khyber, and expressed appreciation for increased cooperation on the border with ISAF forces."
http://www.guardian.co.uk/world/us-embassy-cables-documents/188670

"Zardari is our best ally in Pakistan right now, and U.S. interests are best served by preventing another cycle of military rule... We now are providing approximately $2 billion annually to Pakistan, including: $1.2 billion in Coalition Support Fund reimbursements; $150 million to improve socio-economic conditions in FATA; $300 million in ESF aid for the rest of Pakistan; over $10 million for internally displaced persons fleeing combat in Bajaur, Mohmand and Swat; $300 million (not yet received); and an imminent $15 million in aid to the NWFP police.8. (C) If approved and financed, the Kerry-Lugar legislation will enable us to triple non-military aid to $1.5 billion per year. We will plan in FY 2010 to spend over $100 million to augment civilian police and $873 million to build counter-insurgency capability."
http://www.guardian.co.uk/world/us-embassy-cables-documents/193196

"Baitullah Mehsud and the military are the predominant
actors in South Waziristan. However, as the government plays
out a strategy of divide and rule, the alliances, feuding, and
maneuverings of other militants as well as tribal and political
figures bears watching in assessing the direction that
operations in South Waziristan will take. End comment."
http://wikileaks.ch/cable/2009/07/09PESHAWAR147.html

"Yes, ISI for the most part, is cooperative with U.S.
Consulate requests for information and support. They are an
important U.S. ally in the Global War on Terrorism (GWOT).
However, there is a divided loyalty within ISI ranks which may
cause inaction, or assistance to Taliban and anti U.S. groups."
http://wikileaks.ch/cable/2009/07/09PESHAWAR147.html

ISI, (Note: Pakistan’s military intelligence. End note), during the in camera session of the parliament recently, had briefed lawmakers and senior GOP officials concerning the virtues of some taliban elements versus the “real militants.”
http://wikileaks.ch/cable/2009/01/09PESHAWAR2.html

It is too early to predict how effective
this new alliance will be in launching cross-border attacks
on U.S./NATO forces, but its formation will provide the group
with unfettered access to Afghanistan across North and South
Waziristan. It is another indication that the GOP's tribal
divide and conquer strategy against militants is not working,
at least not to our advantage. Pakistan's security forces,
however, may see limited downsides to an arrangement that
focuses militant attacks outside of Pakistan.
http://wikileaks.ch/cable/2009/03/09ISLAMABAD478.html

"This is just the second time that GHQ has approved deployment of U.S. special operations elements to support Pakistani military operations. In September 2009, four SOC(FWD)-PAK personnel who were embedded with the Frontier Corps (FC) at XXXXXXXXXXXX in the FATA, provided ISR for an FC operation (reftel). This support was highly successful, enabling the FC to execute a precise and effective artillery strike on an enemy location... U.S. special operation elements have been in Pakistan for more than a year, but were largely limited to a training role. The Pakistani Army leadership previously adamantly opposed letting us embed U.S. Special Operations Forces (SOF) with their military forces to support their operations. The recent approval by GHQ -- almost certainly with the personal consent of Chief of Army Staff General Kayani -- for SOC(FWD)-PAK deployments to XXXXXXXXXXXX appears to represent a sea change in Pakistani thinking. Patient relationship-building with the military is the key factor that has brought us to this point. The Pakistanis are increasingly confident that we do not have ulterior motives in assisting their operations. In addition, the direct recipients of SOC(FWD)-PAK training appear to have recognized the potential benefits of bringing U.S. SOF personnel into the field with them for operational advice and other support. In addition, the success of the initial deployment to XXXXXXXXXXXX likely helped catalyze the follow-up requests for new and repeat support."
http://wikileaks.ch/cable/2009/10/09ISLAMABAD2449.html

DGISI Pasha said Kayani was receiving criticism on the bill from the Corps Commanders. Ambassador emphasized the bill’s long-term commitment to Pakistan and made three points: provisions of the bill could be waived; the bill only requires certifications and “assessments;” and the bill does not apply to the large amounts in the Pakistan Counter-insurgency Fund or Coalition Support Fund but only, so far, to non-appropriated Foreign Military Financing. Pasha and Kayani repeated that the Army had taken huge steps this year in its bilateral cooperation with the US and in its campaign in Swat and Bajaur and was getting little public (or private) credit from the US for these historic steps. Kayani said he was considering a statement on the bill, but he was struggling with what to say. He realized that Senator Kerry and Vice President Biden, the original sponsor of the bill, were among Pakistan,s best friends. He predicted the parliamentary debate would be tough, but in the final analysis the government controlled the agenda.
http://wikileaks.ch/cable/2009/10/09ISLAMABAD2427.html

the moderate muslim brotherhood, FA 2007

(108): MB as 'moderates' with whom the US can work

(110): for moderates in MB, democracy as compatible with 'slow Islamization'

(111): whereas for jihadists (Abu Muhammad al-Maqdisi), democracy is 'polytheism'

(111): road to power is not revolutionary ('Fabian strategy')

(112): 'salafi?' but there is the Jamal al-Din al-Afghani kind (political participation), and the Saudi kind

(113): Qutb's ambiguous legacy

(115): reformist vs. conservative divide, re: question of political party

(115): no effective international organization -- ('no Comintern'). differences re: Iraq invasion, war in Lebanon, etc.

(118): no Islamists arrested in the French riots in 2005

(119): softness of the brotherhood in France (UOIF)

anwar shaikh, crisis: the punchline of the story (lecture 15 – 12/14)

each of the economists that we've studied have stressed the centrality of profit to the reproduction of the capitalist system.

if you eliminate profitability, then the system contracts sharply. this can happen for various reasons – bad weather events, etc.

that's why we begin, always, with the question—where does profit come from?

1. the aggregate profit (surplus)

2. the rate of profit – all three authors make a distinction between the expectation that profit will be rising absolutely (surplus), and the idea that the rate of profit will be falling. in other words, there is a distinction between 'growth' of the surplus product, and the question of the rate of profit.

Marx, like Smith and Ricardo, argues that the rate of profit falls. he roots his claim in the argument that accumulation undermines itself—the pursuit of profitability itself sets in motion dynamics that undermine profitability. in Smith and Ricardo, this is viewed as a secular trend; there's a debate in the Marxist tradition, about whether this ought to be understood as a secular trend (which Shaikh believes), or more a long-wave type dynamic.

recall that one (conceptual) limit to the growth rate is the profit rate (you can't re-invest more than your profits). this is just a counting identity. at a more concrete level, it obviously also depends on the interest rate – the growth rate will be limited by the difference between the profit rate and the interest rate (the 'risk-free' rate)

Adam Smith says that there's a stable relationship between the interest rate and the profit rate ('in the market, a rule that the interest rate be half the profit rate'). in that case, you would expect that the interest rate follows the profit rate. there's a long discussion that follows, here – Shaikh is alluding to his answer to this question.

wants to put together a concrete history of accumulation, based on the argument that capitalism is driven by the profit rate on enterprise. that's the link to the material that we've done, thus far.

- - - - -

first, a distinction between 'cause' and 'trigger'

a cause is something underlying—something fudamental that predisposes an outcome (for instance, if you have a particular health problem, a weak heart—then it's not very surprising that you get a heart attack. this might be, however, an immediate result of winning the lottery, or something. so the trigger is not the same as the cause).

there's a strong tendency to suggest that the shock is the cause. it might be (asteroids hitting the dinasour), but it could very well not be. in accounts that aren't systemic, of course, they focus on the shocks/triggers.

mortgage crisis as the trigger; immediate cause is the huge credit bubble which preceded it by decades.

deregulation, however, was going on since the 1970s because banks and busineses were pushing it for reasons of profitability (inevitably, the pressure on banks is to make profits, take risks – the trouble is that, you're not telling banks to throw around your gold, that's for investment firms. if they're limited by the State, then they chafe under those limits. some countries resisted this pressure (Canada and India)).

so was it just deregulation? no. it is silly to say had deregulation not happened, the crisis not have happened (we're going to substantiate this, now)

thus, there is a deeper question that needs to be asked here: why was there a huge credit bubble, in the first place?

was the credit bubble just Greenspan's folly, an atmosphere, etc.?

no – what we are experiencing is a structural crisis, part of a recurrent pattern (and what's surprising is that we're remarkably 'on pattern')

Great Depression of 1840s, 1880s, 1930's, and 1970's

some of these were sharp collapses in the real economy (late 1840s and 1930s)

others were protracted declines (1840s and 1970s)

again, profitability is the driver of growth – not by 'sales'

the point where profit stagnates in more than a temporary way is a point of absolute overaccumulation (when the mass of real profit of an enterprise stagnates or falls). individual capitalists may gain, and others may lose – but the capitalist class as a whole is losing.

this triggers a 'phase-change' in the behavior of the system. those that are doing badly start pulling back, etc.

the key point Shaikh is making, is that the phase-change triggers a change in the system's dynamics. the tide that was moving in begins to move out (remember, the future just evaporated – a lot of financial profits are booked on future expectations)

- - - - -

let's begin the story from the last Great Depression (the 1970s)

1. accumulation is driven by profitability

2. accumulation undermines profitability –> rate of profit falls

3. the stagflation crisis of the 1970s and 1980s across the capitalist world was a Great Depression with widespread failures (a lot of this was covered up by inflation – the stock market collapsed in real terms, if you account for this). of course the death-knell for Keynesian theory (loosening labour markets and inflation)

4. it didn't lead to the enormous collapse, recovery was driven by three extraordinary developments

   1. an extraordinary fall in the global interest rate, which raised the profit rate

   2. an historical attack on the welfare state, destroying the standard of living

   3. an extraordinary recourse to debt to fuel the global expansion of capital, and to cover up the declining living standards of workers

in short, Shaikh painting a picture of a crisis postponed.

looking at a graph of the general rate of profit – suggesting that if we get rid of the 'noise' (impact of war, etc), you have a declining rate of profit trend.

the 1982-2005 'boom', moreover, saw more-or-less constant profit rates. how did we get a boom? how did we get accumulation.

key: you have to look at the interest rate. something extraordinary happened to the interest rate.

(question of where the inflation in the 1970s comes – Shaikh referring us to his paper on inflation. if profitability is falling, then even the same rate of accumulation can be inflationary. remember, the difference between the growth rate and the profit rate is a throughput measure, how 'tight'/'loose' the system is)

we tend to think of the interest rate as a 'riskiness' measure, etc. but there's another way to think of it. the interest rate is the 'price' of the money you borrow/lend. if you put it that way, you can think of the 'interest rate' as a natural price – something that gives banks normal profits. if that's the case, then the interest rate will rise with the 'cost of banking'.

so you would expect the interest rate to follow the price level, all else being equal; this is important, because orthodox theory disagrees. they think of this as Gibson's paradox, which is the observation that interest rates rise with the price level (empirically this holds until around the early 1980s, Volcker shock, after which deviation begins); they can't explain this, because of their theoretical apparatus).

you can have two explanations for this: (1) policy; (2) the costs of banking decrease, meaning that the interest rate declines (Shaikh's position)

Shaikh also noting that global interest rates match US interest rates. whatever the explanation, the fact that lower and lower interest rates explain the great credit bubble.

the reason we got out of the Great Depression of the 1970s was not because of a recovery of profit rates, but because of a fall in interest rates.

obviously, though, this has limits. you couldn't offset the profitability problem forever; and we arrive at the 'recovery's' limits.

what happens to labour, in all of this? real wages and productivity are linked until the early 1980s (thanks to the balance of class forces, in short). but after, you have a rise in the rate of exploitation, and workers pile on household debt (from 30% in early 50s to 140% in 2007/2008). about 15% of annual income went to dept repayments, at the peak.

remember, despite this, the profit rate was still constant in this period – despite the fact that the rate of exploitation is rising.

General Implications:

1. occurrence of Great Depressions is an intrinsic outcome, even if it's modified in its path/expression by conjunctural factors

2. Great Depressions have built-in recovery mechanisms: lowering of real wages relative to productivity, global reserve arem of labour, concentration and centralization, etc.

3. shift in hegemonic balance of powers will not alter this intrinsic dynami

what can you do, in periods like this?

well, we have the example of Japan – Japan didn't let the kind of forest fire that the US and England (sort of) let happen. they just let interest rates fall.

what is quite striking is that we've got a quasi-boom, now – the 'recession' is allegedly over.

in 1933 the NBER would have declared the recession over, don't forget. there was a recovery, after the jobs programs, etc. (emphasis that this is a very different kind of stimulus—offering employment, rather than shoring up the liquidity of investment banks, or less stimulatory 'Star-war' wars).

the deficit is only 1% in the early 30s (it'll be 12% in WWII, of course, which tells us something about how class interest and wars) –but this is largely a result of the fact that natural recovery mechanisms were allowed to express themselves (massive unemployment, enormous business failures, etc.)

an important point about stimulus – the contemporary model is the preferred one for capital (shoring up banks, etc.); the second, of course, makes the profit motive subordinate to social goals which is correctly seen as a threat to capitalism (giving to the reserve army).

- - - - -

question: 'natural recovery mechanisms' mean austerity and unemployment, etc. but presumably Shaikh would agree (a) that this doesn't include the kind of austerity that is being discussed, today, given the fact that we're not letting banks collapse, etc. (in other words, is mass unemployment more important, or bank failures, business failures, etc.); (b) are there alternative ways of unleashing 'natural recovery mechanisms,' by sponsoring alternative centers of accumulation, etc. (and/or stimulating job growth?).

anwar shaikh, growth (lecture 14 – 12/7)

to begin with, when you talk about theories of growth, you have to distinguish between

1. exogenous theories of growth

2. endogenous theories of growth

what drives growth in the neoclassical theory, as actually growth in the labour supply. the supply of labour is the restriction, provided for full employment (this is all in the absence of technical change, remember—through the assumption that technical change is exogenous; as is population)

in neoclassical theory, supply determines growth rate at the most abstract level.

technical change can change this limit, yes – but it's still linked to the growth rate of the labour supply. the growth rate of capital is 'exogenously' determined (not 'contingent,' per se – it would have to do with slow-changing attitudes toward reproduction, etc.)

the key point that Malthus erred in, according to Marx, was this one – it's not the case that labour is the limit to the growth rate of capital.

in Keynesian theory, 'aggregate demand' is the critical variable.

1. Y = Consumption + Investment

2. Consumption = f(Output)

3. Investment = exogenous in the short run

Thus, Y = Investment / (1 – Consumption) ['the paradox of thrift' : if you save less, you get a larger multiplier]

Investment is exogenous in the short-run. The growth of output will be the result of the growth of investment.

Investment, in Keynes' argument, is dependent on the expectations of future profitability. This is why it's volatile, etc. This is getting closer to a classical model, insofar as your long-term expectations will be driven by your current profitability.

this is a point that Joan Robinson makes about Keynes, arguing that he's part of the tradition that argues that profitability is central.

in one sense, then, Keynesian theory is similar to the neoclassical story – possible to understand 'expectations of future profitability' as exogenous (the growth of the system depends on 'how capitalists feel,' on their animal spirits). many many Keynesians follow this line.

on the other hand, Joan Robinson insists that this can be assimilated to an 'endogenous' theory of growth.

(mentioning Soros and the 'valium cycle' theory of crisis: Soros is not suggesting that expectations determine fundamentals entirely – that would mean that there could be no such thing as bubbles – he's arguing, instead, that expectations can affect fundamentals without entirely determining them).

the third school – the 'classical' school – agrees that growth is driven by investment, but this, in turn, is centrally determined by profitability. therefore the laws of profitability are crucial to understanding accumulation.

at that level, in the abstract, we could skip over much of the concrete discussion of 'aggregate demand', etc., etc.

in neoclassical theory, there is an assumption that supply and demand match each other – the supply is full employment, and demand has to adjust to supply. the formal mechanism for this bringing into equality is the interest rate, which determines the level of investment, etc. (a Say's law type argument)

Keynesian theory flips it – supply adapts to demand. you get the story of the multiplier.

Marx doesn't have either argument – Marx's answer is that both supply and demand are regulated by profitability. this is the whole point of the schemes of reproduction.

(important to remember that Marx didn't write Volume II of Capital – schemes of reproduction come from 1870 and also from 1878)

Marx begins, of course, with a putatitive puzzle: every capitalist throws in a certain amount of money, which they use to buy labour-power and means of production, in order to produce more commodities and ultimately acquire more money. how is it possible for every capitalist to sell at more than they put it? where does that 'extra demand' come from? who buys the surplus product?

Malthus' answer was the 'unproductive consumers' (the landlords)

Luxemburg's answer was that this 'demand' has to come from the non-capitalist sphere of production. if that argument is correct, than the suggestion would have to be that capitalism cannot grow after it has become generalized.

Marx wants to show us that it doesn't come from outside the system, but inside it.

the broad answer is that the demand comes from the interaction between the circuit of capital and the circuit of revenue.

the argument, of course, is that it is possible to have balance (see attached sheet). he is NOT saying that any supply creates its own demand – that if I double my supply I will automatically get demand. this second proposition is Say's Law.

he cannot, at the level of the schemes of reproduction, give us an answer about what happens when you stray from balance.

(there is a dynamic solution to this adjustment process – John Hicks)

if it's true that you can show an adjustment process, then it's possible to have fluctuations around a growth path. so you can have a turbulent adjustment process around a growth path. demand and supply can mutually adjust to each other, despite overshooting, etc.

remember Marx has not had to incorporate credit into this argument, at all – all you need is an expanding money supply (some argue that you need 'credit' to make this work; Duncan Foley, for example).

remember, this only establishes that 'balanced growth' is algebraically possible (Kalecki and Luxemburg would stress the necessity of imbalance, in this way – Shaikh arguing they were mistaken). nor does it tell us what the level of the growth rate will be.

you have to answer the (a) adjustment to equilibrium question, and (b) the level of investment question (profitability) – and this will take you toward crisis theory.

any system which has available labour, etc., can't possibly grow faster than the profit rate (the rate at which it produces surplus). that is the upper limit of growth.

this, Shaikh is adding, also suggests that this is the root of a theory of 'inflation.' the third theory for the 70s – if profitability is following, and the growth rate was not falling, then you're getting closer to this 'limit' ('the throughput'). Shaikh's argument is that this explains excellently the fluctuations in the rate of inflation.

anwar shaikh, competition on a global scale: trade and uneven development (lecture 13 – 11/30)

paul krugman as a 'conservative,' when it comes to trade theory.

China as having 'undervalued' its currency; having run a balance of trade surplus.

the assumption, here, is that the currency should appreciate, of course—under free trade we should return to equilibrium ('the sacred tenet of international trade theory', since the time of david ricardo)

the classic story begins with two people (wouldn't trade if it was good for each) – generalizes to two countries (obfuscating all important questions)

in the world out there, of course, we see trade surpluses/deficits because we don't have enough competition (manipulation, etc) – not because the theory is wrong.

the counter-argument is made by Marx, Keynes, and Harrod (sp.?) – we need to look at the logic of the counter-argument. this has no presence in the textbooks, of course, despite these being major economic thinkers.

Marx's writings on Ricardo's theory of trade don't show up in what we have from Marx. it's inconceivable that he didn't write about it; but we don't have any public documents.

if you believe the Krugman story, then third world countries, with flexible exchange rates, ought to open up their economy. they can become competitive through opening up their barriers, rather than through development, etc.

logic of the conventional argument:

trade deficit –> finance outflow –> exchange rate decrease –> relative prices come down –> becomes more competitive

trade surplus –> finance inflow –> exchange rate appreciation –> relative prices go up –> becomes less competitive

what's Marx's argument?

if you have a country that has a deficit, money leaving the country doesn't produce a fall in prices (Marx doesn't buy the quantity theory of money, remember) – what happens, instead, is that liquidity dries up, raising the interest rate.

in the country that has a surplus, the opposite would happen – money inflow would produce falling interest rates.

this means that finance capital has an incentive to lend to the country with a trade deficit, which would produce an inflow of caiptal, counterbalancing the outflow that was produced by the deficit. this would, in turn, mean that prices wouldn't fall (as in the conventional theory), which would mean you could lock in trade deficits and surpluses.

the consequence of that is that the country with a trade deficit becomes an international debtor.

there's a deeper question, here, too. what happens when financial capital is unwilling to invest in a place with low interest rates to the extent that would offset outflows? the exchange rate moves. but what happens as a result of movements in exchange rates.

is it true that the exchange rate is determined by the balance of trade?

what's the relationship between competition and the exchange rate?

remember—on the basis of this theory, you will see the equalization of interest rates [what does this mean, though, re: the flows?]

krugman argues that competitiveness is not the source of trade deficit/surplus

classical theory says that what balances is the balance of payments, whereas neoclassical theory suggests that it's the balance of trade

what are the laws of competition, in this example? what are the laws of international competition?

in order to answer that, we need to know about intra-national competition – between firms

classical theory

1. competition within an industry: turbulent and rough; equalization of selling prices (the law of 'one price' says that prices are bound together, and would fall/rise as 'clusters')

2. competition between industries: turbulent and rough equalization or profit rates

in the event of differential profit rates, where firms from Industry A are looking to invest in Industry B, they'll reproduce the labour conditions of the 'regulating capitals'

equalization of profit rates happens across regulating capitals – the profit rate on new investment ('incremental profit rates') [equalization across industry and financial assets, interestingly enough]

these laws of competition are laws that punish the less competitive and reward the more competitive.

let's assume, then, that we have regional competition within a nation. you have three industries, both located in two regions.

some of the producers in each region will be 'exporting'/'importing' across regional boundaries. suppose you were to discover that one region was selling much more than it's buying. it had a trade surplus, in other words, due to its lower costs/superior competitiveness.

since there's no exchange rate movement to make it 'equal' (as per the neoclassical theory), there's no mechanism to prevent unevenness. in other words, the weaker firms are eliminated.

so it is bizarre, then, to hear the argument that if New York became a separate country, with its own currency, it would no longer have to worry about high costs, productivity, etc. (you don't have to have infrastructure, development, education, etc.) [cf. Ha-Joon Chang, “Kicking Away the Ladder”]

- - - -

having answered why trade imbalances can be sustained, we also have to ask how/why trade imbalances emerge.

remember, natural prices depend on costs – the fundamental regulator would be direct/indirect labour costs plus the rate of profit.

so in regions, relative prices will reflect regulating capital costs in one region divided by regulating capital costs in other regions

how does this relate to trade?

in international trade, relative prices are determined similarly – real costs in export industry A divided by real costs in export industry B (so high costs would mean that you would have relative difficulty selling your goods abroad). competitiveness, then, enters through the cost structure – productivity, real wages, long working days, etc.

so now you have an argument of the determination of the terms of trade that rests centrally on competition. the terms of trade are regulated by real costs.

(P Xa* Nominal Exchange Rate) / P Xb = Real Costs Xa / Real Costs Xb

relative costs change relatively slowly, remember (real wages and productivity don't change dramatically, over short periods of time). suppose a country's inflation rate was changing much faster, which would mean that you would expect nominal exchange rates to be depreciating. for low inflation countries, the nominal exchange rate doesn't need to move very much, since relative prices are moving together, more or less, and would be regulated by real costs.

(showing data on persistent trade deficits and surpluses)

for heterodox economists, the response is that the world is imperfect – so progressive economists will advocate that the State intervene to counter these imperfections.

for orthodox economists, the response to the world's imperfections is to demand as perfect a world as possible (no unions, no State, etc.)

anwar shaikh, unemployment (lecture 12 - 11/22)

the theory of unemployment in marx, as contrasted to the theory of unemployment in Keynesian and neo-classical theories

(1) 'have you worked in the last week?' (1) if you've worked even ten minutes in the last week, you're counted as employed; (2) many countries 'make up' their unemployment rates (Pakistan, etc.)

(2) if you've become discouraged and aren't looking for work, you are not counted as unemployed. the unemployment rate drops when people fall out of this category (people who just 'give up')

(3) people in institutions are not counted as unemployed—it's a voluntary measure, not residual (if you lose job and go crazy or get jailed, you're not counted as part of the labour force)

even this very restricted measure is used in the US, this is 9.6%

if you use the scandinavian measures (incorporating discouraged, and weighting by length of time), then the measure jumps to 17 and 17.5% [and even that doesn't count the measures of people who drop out, or who are institutions]

marx's concern, of course, is with real unemployment, unencumbered by this nonsense

the neoclassical theory of unemployment: that unemployment is automatically eliminated by free markets—if the labor market were allowed to work properly, than unemployment would vanish. the story is fairly simple—the unemployed will bid wages down, until all are employed.

if the real wage is flexible, it settles at a market-clearing price (what happens if the real wage is below subsistence? well they don't have a concept of subsistence, but an implicit claim that it's below the mkt wage—at a theoretical level it doesn't appear)

from this point of view, the source of unemployment is gov't/institutional intervention.

a further suggestion, here, if the government tries to pump up the economy, you're going to get 'full employment' (because you are at NAIRU – 'effective full employment')

the problem, of course, is that over the 70s and 80s, you didn't see the patterns expected—and they suggested that NAIRU just needs to be adjusted.

this argument goes one step further—if you're at full employment and you try and pump up the economy (and rational expectation says everyone knows inflation is coming), you go to the employer and demand higher wages (because of that, there'll be no change in employment) [“policy impotence” – the government cannot change the unemployment rate]

this is the debate that's going on today, in the world right now

keynesian theory of unemployment: neoclassical theory implies that the output and effective demand are full employment-enabling (that all labor can be effectively employed when the real wage goes down)

keynesian theory says that you're going backward – aggregate demand (which is exogenous) determines the level of output, which in turn determines the level of employment. the output level at any given money wage is the determining factor.

the fulcrum of the story is aggregate demand (the 'commodity market', as it's called)

the central conclusion, then, is that there's no reason that the aggregate demand will give you full employment; you can have persistent unemployment, etc., depending on AD.

policy-wise, to make the demand go back up, you have monetary policy (cut the interest rate), or fiscal policy (spend gov't money, run gov't deficits), by borrowing/printing money,etc.

the difference between the neoclassical theory and the keynesian theory is that the former thinks you are at full employment, and the latter thinks that you might or might not be (but can very well be). both agree that full employment is a sustainable situation in capitalism—but unlike neoclassicals, keynesians think that you need the government to do it.

what about wages? what about the labour market, etc?

here Keynesian theory becomes very unclear:

1. money wage doesn't change if there's unemployment. why is that though? (b/c of unions—well that's the neoclassical argument). Keynes himself admits that if there's persistent unemployment, another solution is to let the market work itself out—instead of pumping up the economy, you can let the economy be dragged down (in this case, he reverts to neoclassical theoretical precepts—but he also adds that this is going to happen at great social cost).

2. money wages go down, but prices will also go down (entails a mark-up theory of price). therefore real wages don't change, but are sticky

important--in both theories, inflation is a full employment problem (both for neoclassical economics, and for keynesian economics, you can't pump up the economy once at full employment or you'll get inflation. in the 70s, of course, you got inflation—and neoclassical economics won the debate).

- - - - - -

the marxist argument

in marx, you don't have this duel between inflation and unemployment.

but let's construct the argument first.

the central point in Marx is the idea of a normal rate of persistent unemployment (reserve army of labour)

what Marx means by that is that capitalism produces and maintains a pool of unemployed labour (the question, we should ask, is what's the mechanism?)

here's how the argument goes:

suppose that employment is growing. there are two possibilities: either this growth in employment is faster than the growth of population, or the opposite is true—the reserve army will fall or rise, accordingly (hydraulic – inflow and outflow q.)

(1) so Marx says, let's start by imagining the best circumstances—the reserve army is shrinking, employment is doing well. as this happens, the real wage will begin to rise (relative to productivity)

(2) as this happens, worker's bargaining power will start to increase.

(3) in this case, though, the impetus to accumulation will decrease (because the profit rate will fall). the demand for labour will fall.

(4) the reserve army of labour will increase, in size

exactly the same story works in the other direction.

in the second part of the argument, he makes the further claim that the size of the reserve army (and the real wage) will also have an impact on the rate of mechanization. on the one hand, the growth of jobs comes from more accumulation; but more accumulation means increased mechanization.

the same dynamic that pulls workers in, also tosses them out.

the end result is a balance at some rate of persistent unemployment. [richard goodwin formalized the theory in a very nice way – 'wage employment cycle'] it's a predator-prey story – you don't ever stabilize, but are caught in a set of dynamic cycles.

so what does it mean, then, to say that there is a reserve army of labour, in practical terms?

(1) one, it means that 'full employment' is not a stable result.

(2) the reserve army is not located in one particular location—but in the sphere of capital as a whole. the appropriate backdrop, today, is the reserve army of labour, as a whole.

what's critical, also, is that Marx's conception of the 'labor power' is distinct from his understanding of all other commodities? labor power's supply is generated by social factors (social relations dictate the supply in a way that's different from other commodities); the demand for labour power depends on profitability. supply depends on social-historical conditions (the limit is not the availability of supply of labour)

this leads to the issue of real wage determination—the real wage, in Marx, is determined by three sorts of things:

1. depends on the degree of unemployment (size of the reserve army)

2. the productivity of labour (in the wage bargain, how much workers produce is relevant to how much they can ask for)

3. social-historical factors (unions, the State, culture, history, etc.)

the immediate question is what are the limits of this?

one limit is that the real wage will have to be above the socially-determined the minimum

but also will have to be below some maximum below some measure of productivity (can't capture all gains)

wage_{socially-determined minimum} <>productivity-limit

this is why—in two countries with the same productivity and employment—you can see differences. class struggle matters, but it matters within limits.

one of the central differences between neoclassical economics and marxist economics is that labour-power is not the same as any other commodity (and thus labour-markets operate differently)

unlike neoclassical theory, where the wage is only a function of the unemployment rate, in marxism the wage is a function of much more. there is also the fact of endogenous technical change, which distinguishes it.

in Marx the problem of unemployment is not a function of interference, but is a product of the character of the labour-market

anwar shaikh, the labour process (lecture 11 - 11/16)

the most important point about the labour process under Marx is that it unfolds under capitalism (this is the contribution of Marxism, remember—the 'social context' matters critically). concepts can't be understood outside of their context ('use-value,' profit, etc.)

the subsumption of the labor process under capitalist relations of production gives it a specific dynamic: endogenous technical change.

first, there is the relation of class and exploitation, which—again—acquires a specific character under capitalism (profit, remember, doesn't appear miraculously—but comes from the possibility of extending the working day past the time taken to reproduce labor-power; the extra length of the working day, of course, is something that labor has to be induced to accept (involves but not reducible to coercion, of course).

here mentioning the feudal labour process, as per Robin Hood; in it, Prince John doesn't control the labour process, doesn't supervise it (peasants are required to produce a certain surplus at certain poitns of time; if they fail, they are punished); under capitalism, of course, this changes.

how does it come about, then, that the labor process can have dynamics, under capitalism?

Prince John was pretty much doing what kings and lords before him, were doing. there was a parallel/auxiliary structure of inducement (Church, ideology, etc.).

labor process in general: materials, instruments (plant and equipment) are used by labor, and out comes a product.

labour, in this view, is the 'active' element – labour works on materials and with instruments.

this is very different from the view of the labour process in neoclassical economics: capital and labour together create a product (via a production function).

in this view, K and L are complementary factors in a production function (here you can't discuss 'struggle', the length of the working-day, etc.). all the elements of the class relations are erased.

[here, the antagonism between workers and tools—which is real, of course—appears in the cultural trope of the 'rebellious robot']

labour process under capitalism: materials and instruments (capital) are worked on by labour (subsumed under capiatlism) to produce capital (not a specific product—what matters is 'profitability'--think about 'bumper crops' under capitalism vs. 'bumper crops' in pre-captialist producion).

Marx distinguishes two types of labour subsumption under capitalism

1. the formal subsumption – (a) it means taking a pre-capitalist labour process and putting it under capitalist 'oversight' (not necessarily direct control, etc). (b) typically it means that workers who are working on making products, but who might still own their own means of production ad/or they may still do things in the old ways. (c) but you have the beginnings of real subsumption and the collective laborer, as individuals are brought under one roof, and submitted to a common/linked rythmn/pace.

2. the real subsumption – (a) involves the rise of detail labour (this is Smith's focus, of course), which is simultaneous to the restructuring of the labour process. (b) involves also the rise of machines – think of the pin factory, again – > with the rise of detail labour, specific tasks can be replaced by specific machines (this technological revolution becomes possible because of the restructuring of the labour process—the worker has to be transformed into an automaton before he can be replaced by an automaton) [under capitalism, remember, the measure is not productivity, but profitability—productivity is a collateral consequence]. despite having made the machine, the worker comes to stand in its way.

we come, then, to the consequences of this transformation.

one, again, is the endogenization of this process of technical change.

the issue of technical change/mechanization, of course, raises a central issue: namely, what is the effect on employment? this will be discussed in more detail next week, but the basic elements: mechanization, in an immediate sense, lowers the demand for labor.

it may be, of course, that increased profitability (the boost to accumulation) might induce me to absorb this displaced labour, elsewhere.

these two effects appear to be independent. given this, we could go both ways—mechanization might always create an additional demand, or mechanization might displace more workers than it can absorb

neoclassical economics' position is that the displaced workers will go to other jobs, dropping the real wage until everybody's employed (as long as there's no unions, government, etc.). the real wage will accommodate any excess supply of labour by falling until everyone's employed. it follows, therefore, that mechanization can never create unemployment.

Keynesian theory had significant objections to this, trying to show that capitalism was compatible with unemployment. the neoclassical response is that it was simply because impediments existed that didn't allow the real wage to fall. Keynes don't offer a good answer to this; tried to argue that if money wages were to fall, then prices would fall, meaning that workers wouldn't actually be paid less (but this assumes/implies (a) workers can't affect their real wage; (b) wages can't rise)

Marx's account, of course, involves this claim about the flexibility of real wages (this is not the objection—real wages are affected by labour supply), but posesses an entirely different account of where this is going to lead (to a permanent surplus working population).

this is not only an unemployment creating process, for labour, but it also has a peculiar impact on capital—the 'falling rate of profit' argument has its origins in this dynamic, remember.