How the Other Side Thinks

At least someone is happy about the debt-ceiling deal:

Low government debt yields may reflect concern about the health of the economy and the drag spending cuts would have on gross domestic product.

Reductions are “going to be good for Treasuries, ironically, because it’s bad for the economy,” Tad Rivelle, the head of fixed-income investment at Los Angeles-based TCW Group Inc., which manages about $115 billion, said in an interview last week. “It ought to further restrain economic growth by in effect withdrawing a good deal of fiscal stimulus.” 

By "good for Treasuries," he means good for people who own Treasuries.

This brings out a point I've been thinking about for a while. Marxist  and mainstream economists don't agree on much, but one view they do generally share is that under capitalism, growth is the central objective pursued by the state. Maybe we should not take that for granted.

For individual capitals, growth, endless accumulation, is a necessity imposed by the pressure of competition. And when the individual capitalist tries to influence the state they are generally looking for measures to help them grow faster. They have to, it's a condition of their survival. But insofar as the capitalist class as a whole (or some substantial fraction of it) exercises political agency, they're not subject to competition. An individual capital needs to grow as fast as possible so as not to be overtaken by its rivals; but for capital as a whole, there is no equivalent pressure. What capital as a whole needs from the state is to maintain its basic conditions of existence and secure its political dominance. And that may well be as well achieved through slower growth, as through faster. Directly, because the labor supply is liable to be dangerously depleted by rapid growth. More broadly, because growth is inherently chaotic, unpredictable and destabilizing. This isn't in the textbooks but you can learn it from Schumpeter just as well as from Marx. Or from just from looking around.

There's a long line of arguments, going back to Marx's reserve army of the unemployed, via Kalecki's "Political Aspects of Full Employment," formalized in the postwar period as Goodwin cycles or Crotty and Boddy's political business cycles, and most fully developed in Glyn et al.'s Capitalism Since 1945, that periods of low unemployment can't be sustained under capitalism, because they put upward pressure on wages and more broadly leave workers overly confident and politically empowered. Greenspan, bless his shriveled soul, was onto something important when he insisted in the late 1990s that the Fed could tolerate low unemployment without raising interest rates only because workers were intimidated by downsizing and the loss of job security.

Now, these are cyclical arguments. And the US hasn't had a cycle of this kind since the 1980s. The last couple of downturns haven't been about wages, at least overtly, but about asset bubbles and oil prices. But even if this recession wasn't caused by the Fed raising interest rates to choke off wage growth (and clearly it wasn't) capital and its political representatives could take advantage of it opportunistically to force down the wage share. One wouldn't deliberately provoke a deep recession just to reduce wages, because of the political risks; but if one stumbles into it and the politics turn out to be manageable, why let a good crisis go to waste?

More broadly, if high growth rates are risky for capital, and if they were only politically necessary thanks to competition with the Soviet Union (this is an important argument that's not quite spelled out in the Glyn book), then we shouldn't be shocked if the post-Cold War state ends up preferring growth-reducing policies. Brad DeLong has been complaining lately about the failure, as he sees it, of the state to live up to its role as the committee to manage the collective affairs of the bourgeoisie. But maybe he just hasn't been invited to the meetings.

UPDATE: Yglesias makes a similar argument in a less provocative way. Before the 1980s, we had episodes of high inflation, and no episodes of sustained high unemployment. Since the 1980s, we've had no episodes of high inflation, but we've had repeated episodes of sustained high unemployment. The obvious interpretation, which I share with Ygelsias, is that the Phillips Curve is not vertical even over the long run -- there is a secular tradeoff between employment and price stability, and since Volcker the Fed's preferences have shifted toward the price-stability side. Why this is the case is a different question, but it seems safe to say it has to do with the diverging interests of workers and owners and their respective political strength.