Saturday, September 14, 2013

Potential and Actual Output Gap: The Failure of US Capitalism, Part I

It seems clear that the current US capitalist economy is no longer capable of “delivering the goods” as was often the justification for supporting the system even though it involved large costs on workers, communities, and the environment.  The claim can no longer be sustained. A whole host of measures beyond the obvious – such as growth rates and unemployment – suggest we have a system that is not working for the larger population. We know it is working well for the 1% and that has been the case since the 1980s and continues to be the case into and through the great financial slump.The latest numbers are in.

One of the measures of systemic failure is the gap between what the economy could produce if it was able to join its currently idle and wasted human resources with its capital stock of machines, technologies, and organizations.  Estimates vary widely but the graph below illustrates the “gap” between actual and potential output.


This reminds me of the wonderful work done by Paul Baran back in the 1950s and 1960 when his Political Economy of Growth was published (I read it in the 1970s/80s). He distinguished between the potential economic surplus and the actual economic surplus and argued that, from a Marxist perspective, the potential surplus is unrealized because of excess consumption, loss of output from unproductive workers, wasteful and inefficient organizations, and most importantly currently chronic under-and unemployment. We can add financialization of the economy to the list of factors. Bottom line under capitalism, there is no reason to bring the potential output in line with the actual output if it is not profitable.

We now know that corporations can make megaprofits independent of capital investment that would expand output via the financial sector so the capitalist system no longer works for the mass of the population. So the additional claim that there is some convergence between private profit and macro-economic dynamism that would lift all boats is also no longer applicable.

If we were viewing this socio-economic dynamic in another country -- say, the former Soviet Union -- we would surely conclude that the system was a failure.  The sooner we recognize that this conlusion applies to our own sacred US capitalist economy, the sooner we will start developing some real solutions that improve the lives of the 99%.

 For more on this issue go here.

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