Thursday, May 1, 2014
More on Piketty/Krugman/Bernanke
Further to the previous: so I read Krugman's article on this topic, went and had a smoke, and came up with sort of a Marxist epiphany.
Maybe the trend in real rates towards zero is an artefact of the declining income (and power) of the working class?
After all, if you have a country where there's one multi-billionaire named Thurston, and a thousand working-class bums all named Billy-Bob, how will Thurston make an income on his wealth?
OK, he opens up a bank, but the only people he can lend to are Billy-Bobs. He can rent out slum apartments to Billy-Bobs. He can start up manufacturing companies, hire Billy-Bobs as workers and sell goods to Billy-Bobs.
In this case, increasing the wealth of the poor (by paying higher wages) will increase the return Thurston can earn on his capital: they can pay higher rent, they can buy more goods, they can take out car loans. There's increasing demand for Thurston's capital, so he can charge a higher interest rate.
If Thurston instead crushes Billy-Bob's union, cuts his wages and destroys his pension, now Billy-Bobs demand less capital; they bunk up three to an apartment so Thurston makes less in rent on that physical capital, they buy fewer goods so Thurston sees lower return on his productive capital, and they no longer can support loans so Thurston sees no more demand for investment capital.
Thus the return on Thurston's capital tends toward zero.
So maybe the trend in real rates to zero is simply the result of the rentier class' victory in a war against labour? Maybe it'd be very fucking easy to reverse the trend, provide a higher return for the rentiers, and avoid Larry Summers' supposed secular stagnation? Maybe all you have to do is restore labour's ability to take a higher share of the return on production?
After all, who else is Thurston supposed to lend to? The government?