Was Marx right?

secretwealth · Post by **secretwealth** » Mon May 07, 2012 2:22 am

I've been thinking a lot about how America has experienced diminishing wages and rising productivity. While I think it ultimately has to do with the concentration of wealth in the financial sector (too many people are trying to get profit without labor, aka money for nothing) as well as the fall of unions, favorable taxation, etc., I have begun to wonder if we are witnessing the tendency of the rate of profit to fall paradox that Marx discussed in Das Kapital.
I wonder if increased investment and capital growth has reduced the margin of surplus labor and thus made labor a less lucrative way of increasing personal or national wealth. This seems to explain the trap of poverty amongst plenty in very wealthy nations while also explaining how the poor in third world nations are still able to rise into higher social classes/income groups. Thoughts?

Dragline · Post by **Dragline** » Mon May 07, 2012 2:39 am

In a word, "No." Read "Lessons of History" by Durant to get a more complete perspective. Fact of the matter is that no economist or "political economist" as they used to be called and remains the more accurate term, has come up with any decent theory of reality. Marx forsaw a new linear history based on an industrialized society. He was plain wrong, as history is as cyclical as it as ever been -- the only real change is that women are allowed to participate and that the concentration of wealth in productive societies has accelerated.
Here is a preview of what I am talking about: http://windyanabasis.wordpress.com/2011 ... -of-solon/
Never trust economists to tell you anything useful. They are merely the founders of new pseudo-religions. Ask yourself when you hear an argument based on economics whether they are praying to the gods of Marx, Pareto, Keynes, Friedman, von Mises or, maybe if they are lucky, Fisher post-1930. They are all wrong in their own ways.

secretwealth · Post by **secretwealth** » Mon May 07, 2012 3:12 am

Dragline, I completely agree that no economist is completely right, but I don't want to throw the baby out with the bathwater. Not even Einstein was completely right--no one is.

Dragline · Post by **Dragline** » Mon May 07, 2012 3:37 am

I don't think any of them are right at all due to the fallacies of their assumptions. And I am saying not even close -- complete doo-doo, like alchemy or astrology. The entire body of economics needs to be rebuilt with the foundations of the behavioral research of Kahneman & Tversky. And some Benoit Mandelbrot for the math. Mandelbrot was the closest we had to an Einstein of our times, but we do not live in an era that values theoretical science or math. We value pseudo-religions like economic theory based on undisclosed assumptions instead.
Read "Thinking Fast and Slow" to understand Kahneman & Tversky and why we need to start over. "Origin of Economics" to visualize some possibilities. And "Debunking Economics" to understand the fallacious nature of the entire subject. Current day economics is essential scholasticism part deux, with a different predicate. All logic, no questioning of assumptions.
And yes, I have a degree in it if that matters. I believe that's why they call it a B.S.

Post by **jacob** » Mon May 07, 2012 3:37 am

In the short run, a cycle looks exponential. In the medium run, a cycle looks linear. And in the long run, it looks like what it is.
People's favored theory says a lot about their time-preference ... or the range of their data set.
The economy is currently deflating due to overproduction. The government is doing all it can to fit reality into their growth-theory because a lot of financial obligations has been made under those assumptions. Too bad---reality must eventually be faced. MEanwhile companies are laying people off to reduce production... they find they can do fine with less people, and so margins are expanding. (They're at a record high.) This creates the basis for Wall Street to hype up stocks on forward earnings, full well, ignoring that those earnings are based on unusual operating margins. It's going to fail. But all this is a short (<20 year) run phenomena. It probably would have been just about over now if not for the inflation of the home-owner bubble.

Post by **jacob** » Mon May 07, 2012 3:45 am

BTW ... in physics/amongst physicists it would be somewhat unusual to appeal to authority, i.e. say that "Einstein said ...". It's also fully internalized that theories are models of reality, not to be confused with reality. We had a big discussion about this once
http://earlyretirementextreme.com/musin ... -dumb.html

Dragline · Post by **Dragline** » Mon May 07, 2012 3:55 am

Why I always rely on Schrodinger's cat for my important decisions:
http://www.youtube.com/watch?v=B7sKqlM4LZg

Post by **jacob** » Mon May 07, 2012 4:18 am

I think the most fundamentally critical[ly wrong] assumption of economics is the idea of infinite substitution. That writing big checks is the only barrier to unlocking new innovations.
That assumption was made in the late 19th century. It will fail in the 21st.
I think it's more important to fix that problem than the problem that people don't act as independent rational agents (leading to normally distributed behavior) but sometimes act as dependent irrational herds (leading to fat tails). Stupid behavior averages out in the long run (or could simply be modeled as a negative carry cost). The lack of innovation is a barrier limit.

Dragline · Post by **Dragline** » Mon May 07, 2012 4:30 am

Yeah, we could sort of pile on here -- there were so many fundamental errors in the assumptions that are taken as fact today. I always thought it was the failure to account for the theoretical concept of entropy since the Jevons/Marshall models were based on Newtonian physics without thermodynamics.
But I feel like all economic models are useless until they can explain the data collected in "This Time It's Different." That was a frickin' masterwork.

LonerMatt · Post by **LonerMatt** » Mon May 07, 2012 8:43 am

>> Marx forsaw a new linear history based on an industrialized society. He was plain wrong, as history is as cyclical as it as ever been.
Well this is riddled with errors.
Marx wrote about two forms of history: the dominating class dominating the dominated (looking in the past, which is a model as relevant as ever), and the end of history (which you refer to).
Since the conditions for the end of history to occur haven't occurred (ergo, the destruction of class) that doesn't make him wrong. He didn't predict when the class struggle would end, or predict that it would be soon (for him) or soon (for anyone), but that the end of class would be the end of history _ as we know it_.

aussierogue · Post by **aussierogue** » Mon May 07, 2012 10:54 am

I always had more time for his brothers Groucho and Harpo..
A good old eye gouge followed by a kick in the pants never hurt anyone!

secretwealth · Post by **secretwealth** » Mon May 07, 2012 11:17 am

Agree with LonerMatt--Marx argued more for a linear development of history that would end when class distinctions ended--because the real driver of society was the distinction of social classes as related to the production of capital. I don't think this has ever been disproven--but it hasn't really been proven, either. I don't think anyone would disagree that social classes, the division of labor, and the exploitation of groups by other groups aren't human universals. The big disagreement is whether this can, and will, end.
Jacob: Do you think the current deflationary period is a result of the declining marginal utility of surplus labor? That's what I was trying to get at in my original post--it seems to me that, in first-world countries--labor is becoming increasingly less valuable thanks mostly to globalization and technology. I imagine this trend will continue logarithmically.

LonerMatt · Post by **LonerMatt** » Mon May 07, 2012 12:28 pm

...in my mind, when we're talking historical theories, it doesn't really matter if they are proven or disproven (especially when considering a way to view history, as opposed to events, etc), but that they are a way of conversing about the past and considering the interpretation of what we think we know.
In terms of the end of history, while that's a phrase oft quoted from Marx, I think the way he views history in the Communist Manifesto is much, MUCH more relevant and powerful: the view that social distinction and upheaval changed epochs in an ongoing struggle defines history as fundamentally cyclical, alive and controversial (as opposed to dead and buried).

Felix · Post by **Felix** » Mon May 07, 2012 1:28 pm

I guess one of the things that make Marx stand out among economists was his consideration of the process of production and his concern with worker rights and working conditions as well as earnings distributions including capitalism's general direction in this regard. In that area, it hasn't really lost its accuracy, I think.

Riggerjack · Post by **Riggerjack** » Wed May 16, 2012 2:25 am

Never trust a dead broke economist. Marx had fantastical feats of logic, but his premises were all wrong. In his models, capitalism was rigid, inflexible. This makes the logical leaps more spectacular, yet causes the end result to be much more widely off base. Flexibility is the strength of capitalism.

The price of labor is not decreasing, it is globalizing. That means industrialized nation's labor stagnates while global labor catches up. This seems to fit the stated goals of the liberal left, yet they are also the ones bitching about it loudest.

call me an optimist, but I think this will be a great thing. Industrialized nations have effectively eliminated poverty. It is time for the world to catch up. I love IT jobs going to India, and manufacturing to China. Population growth will be managed by women choosing Careers Over children. That won't happen until foreign capital raises global labor.

secretwealth · Post by **secretwealth** » Wed May 16, 2012 2:40 am

If the Chinese and Indian governments treated their people well, or at least gave them a decent standard of living, I wouldn't mind the globalization of jobs. But what we're seeing isn't the developing world catching up--we're seeing a race to the bottom.

Riggerjack · Post by **Riggerjack** » Wed May 16, 2012 2:02 pm

So your thinking is that we shouldn't do business with anyone, unless you approve of their government? And you only approve of industrialized country's governments?
That sounds like "screw the poor" to me.
I think of governments like shepherds, and that is how they behave. A shepherd can use his flock however he chooses, be it sheering, slaughtering, or schtuping. Other shepherds won't interfere. But mess with another Shepard's flock and there's trouble.

The wrong shepherd can totally mess up a flock, see Argentina. But if you want to help a flock with a bad shepherd, you don't try to get a better Shepard, you teach the sheep to live like goats.

This is already happening in India. There used to be huge competition/pride//status in getting a call center job. Then an IT job. Now it's the managerial positions at Microsoft.
All those folks will want their kids to live a better life than they had. That will be the force of change that fix things there, not the sniff of disapproval from industrialized sheep.

secretwealth · Post by **secretwealth** » Wed May 16, 2012 2:27 pm

I'm sorry, I didn't understand a word of that metaphor. I can say that I'd never do business in China or India on ethical grounds. I do approve of some third world country governments, if they respect the rule of law and allow free enterprise without subsidizing favorites. Neither is the case in either China or India, where the government's control of corporations is breathtaking. And that isn't even addressing the lack of democracy in China, the high corruption in both, the casual genocide, the refusal to build effective infrastructure...
Both nations look like they're progressing...until you actually visit them.

Riggerjack · Post by **Riggerjack** » Wed May 16, 2012 2:49 pm

Your issue is that India and China are corrupt socialist (there's a redundancy) governments? I couldn't agree more.

The question is what to do about it. I believe education by example is the best approach.

You seem to favor quarantine?

secretwealth · Post by **secretwealth** » Wed May 16, 2012 2:53 pm

I don't know what is the best approach, but facilitating certainly isn't the answer. I don't have a solution to the problem, but at least I can sleep at night by staying away.