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Mish, Marx and the Future of Capitalism
Marx Identified the Economic Problem
While Marx did not have the correct solution, he did identify the problem, ie that the small businessman will cry for the reestablishment of credit in times of financial turbulence, even though credit strengthens the monopolies and creates a financial aristocracy, that acts as a blood sucking parasite of speculation upon the wealth of the society.
So while I agree with Mish about deflationary pressures, and about the need for frugal living and correction of personal balance sheets, I think Mish and Marx (and myself) have a lot in common in their disdain for the credit cabal that rules the world.Except that recently Mish has come out and said that borrowers were more at fault for the housing crisis than the lenders. That is a boldfaced lie.
Creditors set up the system of easy money, and warned people that if they did not buy they would be forever left out of the housing market. They are at fault for the housing bubble.
Marx's solution was the dictator of the proletariat. Mish's solution as I understand it is the dictatorship of free market capitalism, sans the Federal Reserve and any market manipulation. It would seem that both solutions will never arrive at success.
But a compromise of the two could effect success. Strong small business and strong unions seem to be a buffer against the large fascistic capitalist and financial power, which uses government and market manipulation to succeed. If we destroy either of these pillars of the average Joe, we will not prosper as a nation.
I disagree with Mish that pure capitalism sans unions and labor will work. Greed has to be distributed, not concentrated. I don't for a minute trust totally free market capitalism to give a bone to the proletariat. Mish and Marx both wanted concentrated power to offset the concentrated power of the large capitalist. Mish wanted the power in the hands of small capitalists and ethical large capitalists. Marx wanted power in the hands of the non capitalist, ie the proletartiat. I say that neither position is necessary and indeed work against capitalism. I would rather see power in the hands of many groups and players.
I am reminded of the James Hoffa letter to Lloyd Blankfein which encouraged Mr. Blankfein to not drive YRC stock into the ground. I remember joking that Mr. Hoffa could scare Lloyd into compliance. While I don't know if that happened, Mr. Hoffa got his way. This is interest group dynamic and power at work. I wonder if Mish would be proud. Well, if he had any respect for unions he could be, but I doubt it.
I have argued for free markets, for allowing the TBTF banks to actually fail. I have argued for less manipulation of markets. All these need to happen within the framework of a fair wage to workers although, at times, these goals seem to be mutually exclusive. If workers lose so much leverage that they have to work for substandard wages, this becomes a threat to real capitalism (not Wall Street corporatism or mercantilism).
Marx had a solution to capitalism, the state central bank, with profits going to the party to be dispersed. However, that would likely not work, and yet what we have is quite different though based upon the model. We have a central bank, private in the US and now public in England, that privatizes profits, and socializes losses. Taxpayers pay for failures in the bets the private banks make, and the central banks allow the bets!
Marx Was Right About a Few Things
The Future of Capitalism and the Distribution of Wealth
First I would say that one can learn a lot from Mike Shedlock (Mish). I enjoy reading his blog and commenting on it. Mish may be be wrong, however, about the uselessness of pouring money into black holes like Freddie and Fannie.
We may be facing the demise of the 30 year mortgage and maybe that is what we need, but the demise of the GSE's and possibly the 30 year mortage will be accompanied by severe economic cost.
Even Republicans who want to destroy the GSE's want guarantees for loans. Without the guarantees, the investors will not invest in the mortgages or will drive interest rates sky high. I do not pretend to know the answers, because without tight underwriting, the 30 year mortgage actually drives prices for houses artificially high.
I have been watching carefully the behavior of the Fed and the big banks in Foreclosuregate, and have determined that securitization is a very dangerous thing when it comes to mortgages. Yes, without it the economy is facing bleak prospects, but securitization is predatory madness.
I agree with Mish that the rating agencies furthered a bank scam with their unreal rosy ratings of very bad bonds and loans. It is because of this behavior all around that I advocate walking away from mortgages, guilt free. (Check with the state laws where you reside before doing it!) We agree that lack of regulation of shadow banking was a huge reason for the ponzi banking scheme.
But I have come across a few things other concepts where I disagree with Mish. I have seen him make a relentless attack on state and local government. While I agree that, for example, police officers are paid too much, causing too few to be hired when more are needed, I disagree that we need to bust unions, kill wages for state governments, etc. Perhaps it is one of degree, but I fail to see how a major attack on wages of union and state workers would help the middle class survive. Seems to me this is just another way for the wealthy to pay fewer taxes.
With regard to Marx and his views on the middle class, Mish is the defender of the lower middle class business person while Marx thought this business person was used and controlled by big business. Mish is the defender of the small businessman and the shopkeeper. He even encourages the shopkeeper to toot the horn of capitalist goodness at the big business level.
Don't get me wrong, I do not support a dictatorship of the proletariat. But I do support some inroads by the proletariat as a means of fostering a lasting capitalism, albeit a modified one. I support a more improved face of capitalism, one in which union members make a decent wage, where the guy without the small business can prosper and where all work is dignified. I don't think that proletariat prosperity has any place in Mish's philosophy.
Mish wants a capitalism where the proletariat is at the mercy of capital. Sorry, Mish. It won't work. It would seem that the lower middle class (which has begun to move up the ranks since Marx wrote a long time ago), ie the shopkeeper and small businessman, has been really hurt by the big capitalist, the real villain and enemy of Marx.
We need to find a middle ground between Mish's view that labor should be at the mercy of capital, and Marx's view that capital must be at the mercy of labor.
Please read on below.
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