Understanding what an economy is
Understanding what an economy is
I get the impression that a lot of people in the west fundamentally fail to understand what the purpose of an economy actually is.
An economy is a model for allocating labour and resources in a way that meets the needs of the people in the country.
The original argument for capitalism was that market economy with private ownership is the most effective way to allocate labour and resources in a way that benefits everyone.
Measures such as the stock market and GDP were meant to act as proxies for measuring how well the economy was accomplishing its stated purpose, which is to improve the standard of living for everyone.
Understanding that these metrics are simply proxies has been lost today, and they've been turned into goals of themselves. People have started treating the stock market and GDP as the economy.
This is why we're seeing an increasing disconnect between the economy that people are experiencing in their daily lives and news reporting on how the economy is doing.
And that's why we see absurd articles like this one arguing that the recession people are experiencing isn't real.
https://www.wsj.com/economy/it-wont-be-a-recession-it-will-just-feel-like-one-1919267a
An economy is a model for allocating labour and resources in a way that meets the needs of the people in the country.
Glances at the last 400 years of human history
That can't possibly be true.
And that's why we see absurd articles like this one arguing that the recession people are experiencing isn't real.
A recession, strictly defined, is a reduction in GDP across two successive quarters. So, academically speaking, we're absolutely correct in asserting that the recession isn't real. Because GDP grew 6.1% in 2023 and 9.1% in 2022.
That said, I'm going to turn to a page in Thomas Piketty's Capitalism in the 21st Century and note that we are experiencing an even faster rate of growth in the Return on Investment. Publicly traded assets grew on the scale of 15-30% annually, over these two years. So, we're experiencing a period in which Rate of Growth (G) < Rate of Return on Investment (R). And when G < R, the disparity between wealth groups widens. This results in more relative poverty, as consumer prices (particularly in real estate and energy) rapidly outpace the median national income.
This deprives lay people of the fruits of economic activity and drives increases in personal debts, domestic poverty, homelessness, and other economic ills.
The problem is not that we are existing in a recession. The problem is that the surplus wealth we are generating through our labor is falling into fewer and fewer hands, resulting in a decline in the quality of life for the population at large.
well said
Publicly traded assets grew on the scale of 15-30% annually, over these two years
That’s the covid recovery. When looking at ROI trends, you need to look at 10 yr blocks.
Furthermore, ROI is measured as profit margin. Currently, there is a trend upwards, the start of which corresponds to the fall of the Soviet Union.
That’s the covid recovery. When looking at ROI trends, you need to look at 10 yr blocks.
We get a market crash / recovery cycle every 10 years. COVID just happened to be the thing that happened in this cycle. Trace the trajectory out over a 50 year window and you're getting escalating rate of return decade-to-decade. The booms are bigger and the bust windows are tighter, now that we've figured out how to flood the asset markets with cheap lending after every downturn.
Currently, there is a trend upwards, the start of which corresponds to the fall of the Soviet Union.
You can trace it back to the Volcker Shock from the mid-70s and the decoupling of labor income growth from overall economic growth. The fall of the USSR was not causal nearly so much as it was consequential. The mass export of American culture in the 70s/80s, combined with the boom in western-aligned consumer manufacturing and service industries, produced social backlash in the old Soviet Bloc states. That, combined with a bunch of CIA-based ratfuckery that involved splitting the hard-right social reactionaries and religious ideologues from the base of left-wing East European governments gave us a series of counter-revolutions that tore out the foundation of the Soviet movement.
Also, maybe Communism In One Country wasn't a great long term strategy. But I'll take that one up with Stalin when I next see him.
Measures such as the stock market and GDP were meant to act as proxies for measuring how well the economy was accomplishing its stated purpose, which is to improve the standard of living for everyone.
I would argue that they aren’t and never have been a measure of how well the economy is at distributing resources. Stocks haven’t been accessible to the working class until recently. And GDP is neither normalized to PPP nor gives any indication as to its distribution among the populace.
The “economy” (read: bourgeois economy) has never been connected to the masses. If you measure how well businesses are performing, then it only tells you how well businesses are performing. That’s why these indicators are lagging and not leading.
I agree that these were never good measures of anything, but they are used as proxies for the health of the economy by mainstream western economies and that's how most of western public sees them. People are told that if GDP is going up, that means economy is doing well, which implicitly promises that their own conditions should be improving.
"economics" for the last hundred years has just been liberals inventing new ways to ignore the labor theory of value
https://taiyangyu.medium.com/addressing-common-criticisms-of-the-labor-theory-of-value-bdf49281fab
completely agree
I want make WSJ writers work salt mine 👍
people who write for WSJ are the reason gulags are necessary
Salt mines are the most benign sort of mines to work in. With the proper machines, you can dig stable tunnels more than 20 metres in width and height, you can comfortably walk around in them, you aren't in any danger of getting stuck or the walls caving in, you aren't mining anything dangerous, you don't get lung cancer from being there, the climate is nice and dry, and the lamps actually work because the salt reflects the light well. Send them mine ore instead
HA, coal and cobalt for these ghouls!
An economy is a model for allocating labour and resources in a way that meets the needs of the people in the country.
Economies are no more "models for allocating labour and resources" than Darwinian evolution maximizes the happiness of all species. All past societies have existed on the simple condition that they were compatible with their material bases. They are not necessarily perfect or optimized for productivity, happiness, justice, etc.
You probably didn't mean it this way, but an economy is not necessarily a consciously applied, a priori model. Most societies have not had planned economies, let alone for any purpose like meeting the needs of the population.
Of course there must be some way that societies reproduce themselves. It is typically brutal as a ruling class exploits another class, the most obvious example being the various societies based on types of slave labor.
"The history of all hitherto existing society is the history of class struggles." — The history of society has been the history of economies for the benefit of a single class, or in legal terms, the history of exclusive property rights held by privileged classes.
The point is that we consciously decides on the rules that act as the economy. This becomes the system that creates selection pressures that drive behavior. Once the system is in place, there is Darwinian style selection happening within the scope of the system. However, the system itself is very much designed.
Systems like capitalism or communism produce different selection pressures for behavior, and we see different outcomes as a result. The part I'm focusing on in the post is that whatever metrics we decide to use to measure whether the economic system is achieving the stated goals need to be crosschecked against the actual outcomes. And those are seen in the material conditions that the system produces.
I realize it wasn't the main point of the post, so without getting too debatey I will clarify a little more before I leave it.
The idea of "an economy" as an external object attached to a society is peculiar to capitalism, for the fact of commodity fetishism, in which relations of production dominate over capitalist society as an external force. Only under these conditions does it make sense to treat an economy as a model that appears dispensable or interchangeable (but is not actually so).
Although societies have started out with consciously defined rules — and by rules I mean property relations — the aim of these rules has nothing to do with creating a stable society. The purpose of the rules is to define who retains privilege, who is oppressor and who is oppressed. Only after the rules are set does the task begin to make these rules practicable. This logical sequence is glossed over when talking of societies' economic relations as external objects called economies.