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Can Marxist Theory Save Capitalism? Yes.

Karl Marx, the famous Socialist philosopher, discussed the idea of class consciousness.  The theory of class consciousness has two distinctions, “class in itself”, which is defined as a category of people having a common relation to the means of production, and a “class for itself”, which is defined as a stratum organized in active pursuit of its own interests.  Now Marx saw the working-class as slaves to the producing class.  But he felt that through a revolution of consciousness (a class for itself), the oppressed could confront the economic mechanisms of exploitation.

Marx saw real power in the collective of the working class oppressed through organized revolt against the producing class.  While the unions were able to achieve a great deal of leverage at given points through the 19th and 20th centuries, the ‘free’ trade agreements have all but diminished any power once enjoyed by the collective of the working class.   The producers have simply moved labour offshore to undeveloped economies where working class members of society have no collective voice.  Problem solved for the producers.

But what if Marx had the concept right but the details wrong?  That is, what if I told you that in a capitalist economic model the working class are the gods and the producing class are the slaves?  You’d think I’d finally lost the plot.  But let me explain why this is in fact true.  And because it is true all that is required is a revolution of consciousness and a bit of technology to reverse the roles of owners and slaves.

It is really very simple.  As working class members of society we are receivers of money.  That is, we trade our labour for money, which is our means of survival.  And so we are reliant on the producers to distribute capital to our labour income.  But producers have a choice between allocating to labour income, capital expansion and profit.  And what we find when we look at the historical observable data is that of the available capital, producers have been allocating less and less to labour income and capital expansion while allocating more and more to profit.  Let’s look at the data.

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And so clearly the issue that Marx and other socialists have with capitalism is that it always seems to deteriorate into a system of greed and corruption where wealth and income become concentrated among fewer and fewer.  What we find is this is not just a morally corrupt strategy but is a mathematically unsustainable economic strategy.  The reason is that labour income and capital expansion have very high economic multipliers while dividends and buy backs have almost no economic multiplier.  Logically then when capital is shifted to low or no economic multiplier allocations the economy will eventually slow to a halt.  This is exactly what we’ve seen over the past 40 years and the period around the Great Depression.

But what I believe has been missed by almost everyone, including Marx, is the fact that while we the people are slaves in our roles as laborers we wear another hat.  People are also consumers and in this role we are gods.  You see producers are providers in their role as employers but they are receivers in their role as investors.  That is, shareholders and corporations are receivers of profit and that makes them reliant on those gatekeepers of profit.  But who then are the gatekeepers of profit?  Consumers.  You see you can increase earnings through cost structure ‘efficiencies’ but only given you have a top line.  More bluntly stated, if a business has no customers it has no sales and if it has no sales it has no profit.  That is absolute for all businesses.

And so what we discover is that consumer spending, by way of consumers, is the air by which producers breathe and without which they die.  This makes consumers the gods and producers the slaves.  From this comes an extraordinary revolution of consciousness.  Specifically that the proletariats are in fact in control of the capitalistic model but have simply failed to recognize it and perhaps never had a mechanism to apply it.

I have spent the past year working through a non profit called the Institute for Sensible Economics where we have developed a mechanism by which the proletariats can control the capitalistic model.  That means, they will, at a very high level, determine how and why capital is being allocated by the producers.  We have built out and continue to expand the development of technology platforms that will activate the existing but currently passive power of aggregate consumption.

Because we as consumers are 70% of the economy and because we are the deliverers of profit, when we begin to apply our power there is simply no other force in the economy potent enough to withstand what we are demanding.  And so the role of slave and owner will soon reverse.  What we have essentially done is tied together the mathematical viability with the moral justifiability to create an entirely new macroeconomic policy platform controlled and enforced by we the people.  The econometric basis of our model has been has been substantiated by various studies done at the best economic schools in the country.   We expect to unleash these technologies this summer.

This is how Marxist theory will save capitalism for true capitalism is a social economic model whereby no stakeholder in the economy can prosper unless all stakeholders prosper (profit can only exist without income if it is subsidized by debt and welfare – which is no longer capitalism but corporatism).  Capitalism has existed very rarely in human civilization and gets a bad rap because of the misuse of its name.

Cisco CEO Chuck Robbins an Idiot or a Liar, You Decide…

So today on CNBC Cisco CEO, Chuck Robbins explained that if they were to repatriate their offshore cash back to the US he would use the money to reward shareholders through buybacks and dividends and then do some M&A.  He claims cash distribution to shareholders in lieu of actual economic stimulating investments creates jobs by way of mutual funds, which make the soon to be out of work Americans from his M&A activity feel good about their income….

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I mean where does one even begin picking apart this absurdity of logic??  It probably is not even worthy of a detailed response.  But I wanted to note, on record, that these are the type of moronic and asinine thought processes coming out of corporate America that are killing the American middle class and will destroy even most on top unless the bottom 80% are handed a stipend to go out and buy products produced by corporations.  If Chuck truly believes what he says, well he is an idiot.  If he has even a shred of economic acumen then he is a liar.  I’ll leave it to you to decide.

But before you decide let me show you a few charts.  First chart below depicts real total wages and salaries (i.e. labor income) as a multiple of real corporate dividends paid.  You will notice the multiple peaks at 24x in 1975, averages 20x from1950 through 1990 and bottoms today at 8x.

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But remember cash distributions don’t just reallocate capital from labor income they also reallocate away from domestic private investment.  So let’s take a look at the multiple of domestic private business investment to corporate dividends as well.

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Clearly we see a pattern of forsaking economically stimulative investments for cash payouts of which 85% get reinvested into secondary financial markets that have zero economic stimulative effect i.e. never hit a corporate balance sheet or income statement.

Now Cisco CEO Chuck Robbins suggests that this phenomenon of shifting capex and labor income to dividends is actually a positive thing for the economy.  So let’s have a look.  The next chart depicts a 5 year moving average of per capita real GDP growth over the same period.

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What we find is that average real economic growth per capita (this is an important measure of individual prosperity) has fallen by more than 50% over the same time period.

Over the past 6 months I have provided a library of research proving that reallocating capital from domestic private investment and labor income in favor of cash distributions has not only resulted in massive deterioration of economic growth but has necessarily relied on private and public debt to fund the deteriorating growth that remains.  I’ve had several prominent PhD experts call me names but I’ve had none of them challenge my research and argument.  I challenge any and all economists to attack my assertion that this secular trend of reallocating capex and labor income to profit (which is the most economically inefficient use of capital) is destroying the long term US economy.  I’m sincerely looking to receive the strongest arguments as this only helps us at the Institute for Sensible Economics refine our research.

 

A Lesson for George Mason Economics Chair, Boudreaux As He Attempts to School Dilbert Creator, Scott Adams

Today Donald J. Boudreaux, who is Professor of Economics and Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center at George Mason University, wrote an open letter to Dilbert creator Scott Adams.  The letter was a rebuttal to Scott disagreeing with Michigan Rep Justin Amash about Trump’s trade policy.

Justin Amash had tweeted out that tariffs will hurt the consumer in higher prices.  Scott retorted that the tariffs will not be applied because the threat of applying a tariff on firms who chase cheap foreign labor but then sell that production back to the US consumer they just laid off will disincentivize the firms from leaving in the first place.  It was then that Mr. Boudreaux jumped in, stating unequivocally that Scott is wrong and Justin is right.

Boudreaux argues that while he agrees the tariff would actually not be applied it would stifle competition and thus consumers would pay a higher price.  Boudreaux seems to imply that low consumer prices are a top priority of trade policy.  Below is the main argument within Boudreaux’s open letter to Scott Adams.

Rep. Amash is right and you are wrong.  Although no formal tax collection is triggered if Mr. Trump’s threats prevent all offshoring, Trump’s tariff – by restricting competition – would artificially reduce outputs and raise prices.  American consumers would pay unnecessarily higher prices, an outcome inseparable from the very purpose of the tariff.  That consumers pay these extra, unnecessary amounts to domestic producers rather than to domestic customs agents is irrelevant: the tariff forces all consumers of these products to pay extra, unnecessary amounts to some small group of fellow Americans who, rather than earn these higher payments, extract them using threats of state coercion.

Let me explain the logical fallacies that Mr. Boudreaux fails to recognize in his chivalrous attempt to defend Rep Amash and our existing international trade agreements (note there is nothing free trade about these agreements).

  1. Boudreaux’s entire argument is based on an unsubstantiated notion that offsetting the labor cost savings from cheap foreign labor with a tariff somehow limits competition.  This is equivalent to saying American production limits competition.    There are currently 28.5 million private firms producing in the US, more than ever before.  I’ve never seen any data to substantiate that American production limits competition. In fact, I find it quite an absurd proposition.  Unless Boudreaux can substantiate that claim, it simply cannot be accepted.  And if the basis of his argument is unsound then the rest of it is invalid.
  2. Secondly is the implication that US firms chase cheap foreign labor so that they can pass those cost savings onto the consumer.  Price models are a function of what the market will bear, not cost.  The point of the cost savings is to drive profits, profits which over the past 5 years are paid directly to shareholders.  Dividends have almost no money multiplier effect.  And so reallocating labor income, which has the highest money multiplier effect, to profit is a net economic value destroyer not creator.
  3. Even if consumers paid a higher price as a result of the tariff, which we know isn’t true based on points 1 & 2 above, the offset of that is they would be paying a higher price with labor income earned as opposed to credit or welfare.  Meaning if I can keep my job, I’m ok paying a slightly higher price because while I might be able to buy less things I can still support my family without private or public debt.  And so to suggest the top objective of trade or any economic policy should be getting the lowest possible price is another absurd proposition.
  4. Boudreaux suggests the tariff is state coercion yet fails to recognize the tariff is a reaction to a state intervention of free markets i.e. international trade agreements that allow labor cost arbitrage to exist without the naturally higher risks of the undeveloped nations that offer the cheaper labor (the cheap labor and higher risk being a function of the same underdeveloped societal infrastructure).  Higher return means higher risk.  Lower labor cost means higher ROI.  Higher ROI means higher risk.  But through state coercion, the higher risk is negated leaving just the higher ROI.  This is not free market.  This is state intervention.  The tariff is being used to level the playing field so to speak.

Mr. Boudreaux, while I appreciate your zeal for trade agreements, I am slightly surprised as to the naivety of your argument.  You haven’t given the readers enough credit.  Something you PhD economists are going to be facing much more of in the coming years.  There is a movement to educate and draw in the American public to such economic discussions.  We will be better prepared to understand your theoretical, applicable and logical fallacies.  You should take note, and be better prepared next time.