Macroeconomics vs Political economy or why Trump and EU are winning(for now) (1 Viewer)

[JohnRawls]

Part 1

This is a bit of a complicated topic so bear with me and this incoming TLDR. There are couple of premises here and problems that will arise from it with explanations:

1) The developed world moved from an industrial society to a post-industrial society. This drastically increased the wealth generated and productivity per person and the general wealth of society. Nowadays 75-85% of our GDPs is based on services and not on industry and agriculture. But this whole change to the post-industrial society based on services have left a lot of people behind and made more menial jobs automated or just too costly in general. So the skill set that was useful during the industrial society has been made more or less obsolete not in the sense that they do not exist but in a sense that those jobs produce less wealth and less value so there are two main differences that less people are employed in those jobs and they get paid less both due to the value proposition and due to peoples interest to get less money.

2) Macroeconomics as a science prefers to approach statistics from the side of averages. So from an Macroeconomic standpoint, everything that has happened in America is good. The total number of wealth has grown, the average wealth per person has grown, the currency is very stable or as stable as it can be, the households or average are way richer than they were 50 years ago even inflation adjusted.

3) Political economy on the other hand tries to link economy to politics so it subdivides the groups that benefit from the economy and the groups that do not benefit from the current economic model. The long story short here is that while it might not deal that much with averages, that linking the economy to the political realm it tries to demonstrate the losers and winners from the economic political system of a society. Karl Marx for example can be called a political economist instead of father of communism. Proletariat vs Bourgeoisie and all that, a name given to a different situation in a different time but also applicable to our own. And this is basically what I will be focusing on heavily although as you can see my flag, I am not a big fan of communism as one would expect to say the least.

So with those premises out of the way then what am I on about here? Well, if we look at our whole political situations here in Europe and US, isn't this the main problem and the main arguing point of "have nots" and "who have". MAGA electorate has always been bringing this up in their self-destructive topics that they do not care about the economy since they do not benefit from it either way and this is the crust of the problem that Political economy studies or studied until it got killed and being revived right now. If previously in the Industrial society America and Europe both lived under more or less the same conditions of large people being employed in large industrial enterprises who all had strong UNION leadership most of the time then that moved to the post-industrial society destroyed all that in America but not in Europe. On top of that the move to post-industrial service based society simply made a lot of menial and routine jobs obsolete or outsourced to China lets say or to other countries that might have way cheaper labour. This in itself basically killed or killing the middle class as we speak. That wouldn't be a problem if all that could be replaced by same value service sector jobs but reality is that all requires a massive skill shift on one side that is just not possible and the most paid jobs in this service economy are very limited. Wealth creation is concentrated in the top of service jobs who can solve problems and figure out solutions and reality is just that you can't have many solution givers/solvers and mass employment comes from the people who implement that vision or solution that those solvers propose. Hence we have the problem that arguably top 20% benefit from the Service based economy exponentially more and in the industrial society it was way more people profiting even those working on the assembly line. An engineer and a assembly line worker are a lot more closer to each other than a McDonalds employee and Technical Fellow/Solution Architect nowadays.

 

[JohnRawls]

Part 2

And in here comes the solutions that the modern world proposes right now, at least that are work in progress:

1) Europe chose the more sluggish way not to abolish fully the Unions and allow them to continue although it was pretty easy to destroy them all in the new world. Europe also focused more on providing social benefits like free healthcare, free education, social programs(helicopter money) for the society at large through way larger taxes compared to the US. This managed to stabilise the situation over a long period of time and if not "fix" the downsides of fully service based economy but to at least flatten out the curve of who benefits from the new model. Now at least there is some significant benefits for all instead of only 20%. And hence the Continental European economic/political/legal model is more stable compared to what is happening in the US at least for now.

2) US chose a bit different approach and to fully embrace the new model with all of its upsides and downsides without looking back. This definitely created way higher growth at some point compared to Europe if we talk about average and total wealth numbers so from a macro-economic standpoint it was really-really good. But then you look at the reality of whats happening in the US politically and the politicians are saying that everything is good and we need to deal with DEI/Woke issues or immigration or whatever but the economy should cruise on as it is while reality is that the middle class seems to be in tatters and fighting to kill itself between the "have nots" and "who have". And Trump is the result of it because 20% < 80%. Trumps solution though now on how to fix it is to move back in to the early 20th century or the 19th century. Which in itself will destroy the wealth that you created from the post-industrial economy of services in the end if attempted for a long period of time.

So while Europe is trying and arguably semi-failing, semi-succeeding to fix what is bad with the post-industrial economy Trump is trying to go back in to the early 20th century or the 19th century industrial society which will inevitably blow up a lot of wealth created from the post-industrial economy. Which is a better solution, only time will decide...

 

[ataraxia]

Hillary Clinton and Barack Obama proposed investing in reeducating and retraining these folks for the modern economy. But these folks wanted their 19 century jobs and didn’t want any part of that modern stuff. They told us that fifth generation coal miners and factory workers were not interested in retraining to code.

Clinton is making coal country a generous offer, but it’s not buying

Coal-mining communities just aren't very interested in Hillary's $30 billion plan to help them transition to a cleaner economy.

grist.org

What they mean by “make America great again” is to keep America in the 19th century when it used to be great. If you keep doing the same thing, you should be getting the same results, right? It’s not like the world changes or anything. /s

 

[ataraxia]

Part 2

And in here comes the solutions that the modern world proposes right now, at least that are work in progress:

1) Europe chose the more sluggish way not to abolish fully the Unions and allow them to continue although it was pretty easy to destroy them all in the new world. Europe also focused more on providing social benefits like free healthcare, free education, social programs(helicopter money) for the society at large through way larger taxes compared to the US. This managed to stabilise the situation over a long period of time and if not "fix" the downsides of fully service based economy but to at least flatten out the curve of who benefits from the new model. Now at least there is some significant benefits for all instead of only 20%. And hence the Continental European economic/political/legal model is more stable compared to what is happening in the US at least for now.

2) US chose a bit different approach and to fully embrace the new model with all of its upsides and downsides without looking back. This definitely created way higher growth at some point compared to Europe if we talk about average and total wealth numbers so from a macro-economic standpoint it was really-really good. But then you look at the reality of whats happening in the US politically and the politicians are saying that everything is good and we need to deal with DEI/Woke issues or immigration or whatever but the economy should cruise on as it is while reality is that the middle class seems to be in tatters and fighting to kill itself between the "have nots" and "who have". And Trump is the result of it because 20% < 80%. Trumps solution though now on how to fix it is to move back in to the early 20th century or the 19th century. Which in itself will destroy the wealth that you created from the post-industrial economy of services in the end if attempted for a long period of time.

So while Europe is trying and arguably semi-failing, semi-succeeding to fix what is bad with the post-industrial economy Trump is trying to go back in to the early 20th century or the 19th century industrial society which will inevitably blow up a lot of wealth created from the post-industrial economy. Which is a better solution, only time will decide...

Good post by the way. Thank you.

 

[JohnRawls]

Hillary Clinton and Barack Obama proposed investing in reeducating and retraining these folks for the modern economy. But these folks wanted their 19 century jobs and didn’t want any part of that modern stuff. They told us that fifth generation coal miners and factory workers were not interested in retraining to code.

Clinton is making coal country a generous offer, but it’s not buying

Coal-mining communities just aren't very interested in Hillary's $30 billion plan to help them transition to a cleaner economy.

grist.org

What they mean by “make America great again” is to keep America in the 19th century when it used to be great. If you keep doing the same thing, you should be getting the same results, right? It’s not like the world changes or anything. /s

It is not that simple. Re-education by itself is hard and not something that all will do by default. You can't blame the people on mass for all not taking it. THe other problem is that they will have to start from the bottom or semi-bottom then in a more advanced age lets say. And finally, there are not that many super high paying service jobs also. Realistically places for Science, research, IT, etc are also limited especially the higher you wanna go.

About 19th century this is also partially my argument. I didn't really wanna fully add it but yes, it is a road to nowhere that will also lead you back to post-industrial economy to proceed further basically. So Trump way looks like a circle backwards and then inevitably to the same thing just with a lot of extra steps and lost wealth to try to regain it again.

 

[ataraxia]

It is not that simple. Re-education by itself is hard and not something that all will do by default.

These guys always talk about bootstraps for everyone else. Wonder where those are right now?

You can't blame the people on mass for all not taking it. THe other problem is that they will have to start from the bottom or semi-bottom then in a more advanced age lets say.

It wouldn’t have to be done suddenly. The transition could be a gradual process of over maybe 10 years or so.

And finally, there are not that many super high paying service jobs also. Realistically places for Science, research, IT, etc are also limited especially the higher you wanna go.

I suspect in general, they would be higher paying than coal mining and blue-collar manufacturing.

About 19th century this is also partially my argument. I didn't really wanna fully add it but yes, it is a road to nowhere that will also lead you back to post-industrial economy to proceed further basically. So Trump way looks like a circle backwards and then inevitably to the same thing just with a lot of extra steps and lost wealth to try to regain it again.

I’m not sure what you’re saying here. You think Trump is somehow is helping the country transition to a post industrial economy?

 

[JohnRawls]

These guys always talk about bootstraps for everyone else. Wonder where those are right now?


It wouldn’t have to be done suddenly. The transition could be a gradual process of over maybe 10 years or so.


I suspect in general, they would be higher paying than coal mining and blue-collar manufacturing.

I’m not sure what you’re saying here. You think Trump is somehow is helping the country transition to a post industrial economy?

Yeah people talk about bootstraps all the time. Because it sounds nice for politicians and to public. Reality is just cruel in this regard, not many are willing to fully re-educate themselves and then start from the bottom or semi-bottom. That requires time, willpower, understanding from whoever you might be related to and so on. There are many reasons why it is not so easy or will not work for all. Don't get me wrong, it is a good policy from the government, it is just hard for the people doing it.

Regarding the 19th century. No, I am not saying that. I am saying that Trump is trying to lead America back to the industrial economy but whoever comes after Trump or Trump policies if long term will need to transition forward/back to post-industrial economy because it just produces more wealth, going back to industrial economy will destroy wealth. So it is a road to the same place you are right now in the long term, just with a circle backwards for some time. At least in my opinion.

 

[TypicalRussian]

Hillary Clinton and Barack Obama proposed investing in reeducating and retraining these folks for the modern economy. But these folks wanted their 19 century jobs and didn’t want any part of that modern stuff. They told us that fifth generation coal miners and factory workers were not interested in retraining to code.

Clinton is making coal country a generous offer, but it’s not buying

Coal-mining communities just aren't very interested in Hillary's $30 billion plan to help them transition to a cleaner economy.

grist.org

What they mean by “make America great again” is to keep America in the 19th century when it used to be great. If you keep doing the same thing, you should be getting the same results, right? It’s not like the world changes or anything. /s

"They told us that fifth generation coal miners and factory workers were not interested in retraining to code."

Who can blame them?

 

[ataraxia]

"They told us that fifth generation coal miners and factory workers were not interested in retraining to code."

Who can blame them?

Sure. But the result is we're stuck in the 1950s economically.

I know that's when these folks think America was great. But the world has changed. Will doing what worked so well back then mean it will still work now? Will doing exactly what we did in the 1950s, or the 19th century for that matter, mean that's how we're going to "make America great again" now?

 

[TypicalRussian]

Sure. But the result is we're stuck in the 1950s economically.

I know that's when these folks think America was great. But the world has changed. Will doing what worked so well back then mean it will still work now? Will doing exactly what we did in the 1950s, or the 19th century for that matter, mean that's how we're going to "make America great again"?

I think still allowing people to choose their career is good

 

[ataraxia]

I think still allowing people to choose their career is good

Sure. But we are talking about policy issues here- and how government can create an environment so that when people choose, they will have incentives in making that decision so that it may be in ways that will help keep the country healthy and competitive economically.

Fighting to bring back blue collar manufacturing jobs and the 19th century coal industry, while attacking and gutting education and training, here in the 21st century now, does not seem like a wise policy approach- at least not for a modern, economically, developed, knowledge-based economy like the United States. But I know it's popular- so... I guess people get what they want, and deserve.

 

[TypicalRussian]

Sure. But we are talking about policy issues here- and how government can create an environment so that when people choose, they will have incentives in making that decision so that it may be in ways that will help keep the country healthy and competitive economically.

Fighting to bring back blue collar manufacturing jobs and the 19th century coal industry, while attacking and gutting education and training, here in the 21st century now, does not seem like a wise policy approach- at least not for a modern, economically, developed, knowledge-based economy like the United States. But I know it's popular- so... I guess people get what they want, and deserve.

Infrastructure and manufacturing and energy and blue collar work is not inherently 19th century work. Those have been constant factors in humanity and there's no sense to outsource them to other countries

 

[bomberfox]

Part 1

This is a bit of a complicated topic so bear with me and this incoming TLDR. There are couple of premises here and problems that will arise from it with explanations:

1) The developed world moved from an industrial society to a post-industrial society. This drastically increased the wealth generated and productivity per person and the general wealth of society. Nowadays 75-85% of our GDPs is based on services and not on industry and agriculture. But this whole change to the post-industrial society based on services have left a lot of people behind and made more menial jobs automated or just too costly in general. So the skill set that was useful during the industrial society has been made more or less obsolete not in the sense that they do not exist but in a sense that those jobs produce less wealth and less value so there are two main differences that less people are employed in those jobs and they get paid less both due to the value proposition and due to peoples interest to get less money.

2) Macroeconomics as a science prefers to approach statistics from the side of averages. So from an Macroeconomic standpoint, everything that has happened in America is good. The total number of wealth has grown, the average wealth per person has grown, the currency is very stable or as stable as it can be, the households or average are way richer than they were 50 years ago even inflation adjusted.

3) Political economy on the other hand tries to link economy to politics so it subdivides the groups that benefit from the economy and the groups that do not benefit from the current economic model. The long story short here is that while it might not deal that much with averages, that linking the economy to the political realm it tries to demonstrate the losers and winners from the economic political system of a society. Karl Marx for example can be called a political economist instead of father of communism. Proletariat vs Bourgeoisie and all that, a name given to a different situation in a different time but also applicable to our own. And this is basically what I will be focusing on heavily although as you can see my flag, I am not a big fan of communism as one would expect to say the least.

So with those premises out of the way then what am I on about here? Well, if we look at our whole political situations here in Europe and US, isn't this the main problem and the main arguing point of "have nots" and "who have". MAGA electorate has always been bringing this up in their self-destructive topics that they do not care about the economy since they do not benefit from it either way and this is the crust of the problem that Political economy studies or studied until it got killed and being revived right now. If previously in the Industrial society America and Europe both lived under more or less the same conditions of large people being employed in large industrial enterprises who all had strong UNION leadership most of the time then that moved to the post-industrial society destroyed all that in America but not in Europe. On top of that the move to post-industrial service based society simply made a lot of menial and routine jobs obsolete or outsourced to China lets say or to other countries that might have way cheaper labour. This in itself basically killed or killing the middle class as we speak. That wouldn't be a problem if all that could be replaced by same value service sector jobs but reality is that all requires a massive skill shift on one side that is just not possible and the most paid jobs in this service economy are very limited. Wealth creation is concentrated in the top of service jobs who can solve problems and figure out solutions and reality is just that you can't have many solution givers/solvers and mass employment comes from the people who implement that vision or solution that those solvers propose. Hence we have the problem that arguably top 20% benefit from the Service based economy exponentially more and in the industrial society it was way more people profiting even those working on the assembly line. An engineer and a assembly line worker are a lot more closer to each other than a McDonalds employee and Technical Fellow/Solution Architect nowadays.

I think macroeconomics approaches things from a very flawed perspective. Averages are not everything.

 

[ataraxia]

Infrastructure and manufacturing and energy and blue collar work is not inherently 19th century work. Those have been constant factors in humanity and there's no sense to outsource them to other countries

The manufacturing sector is a product of the 19th century industrial revolution. Modern developed economies have moved beyond that now, and that's how they have been able to grow. A post-industrial economy is characterized by a shift away from manufacturing and towards services, information technology, and knowledge-based industries. This transition is marked by the decline of blue-collar, manufacturing jobs and the rise of professional and technical workers. Essentially, the focus moves from producing goods to providing services and utilizing knowledge as a primary form of capital.

Post-industrial economy - Wikipedia

en.wikipedia.org

So sticking to, or even worse- going BACK to that economic model- is not going to help economic growth, especially for an already advanced modern economy like the US. Basically if you keep doing what you did in the 1950s, you're going to have the GDP of the 1950s economy. Do you think that's desirable, or wise?

 

[ataraxia]

I think macroeconomics approaches things from a very flawed perspective. Averages are not everything.

So what would you recommend?

 

[JohnRawls]

I think macroeconomics approaches things from a very flawed perspective. Averages are not everything.

As asked above, sure macroeconomics are not everything but averages are also very very important and in general macro economics is also not wrong. The problem is obviously it doesn't account for many things more so than it is wrong. Because historically it had other job than to account for everything or connect the economic realm to the societal/political realm.

In a sense it is a flaw but it is by design. The flaw part is that political decisions guide economic development or fall in a lot of cases and you just can't be non-accepting of that. Just growing wealth is much easier than growing wealth that benefits the society as a whole or vast majority of society.

From a pure macro-economic standpoint, like a really utilitarian standpoint, a heavily corrupt government in to slavery and total abuse of its population that is forced to work 20 hour work days would be okay as long as the total wealth grows and averages grow (Yes an exaggeration for obvious reason to deliver a point)

 

[TypicalRussian]

The manufacturing sector is a product of the 19th century industrial revolution. Modern developed economies have moved beyond that now, and that's how they have been able to grow. A post-industrial economy is characterized by a shift away from manufacturing and towards services, information technology, and knowledge-based industries. This transition is marked by the decline of blue-collar, manufacturing jobs and the rise of professional and technical workers. Essentially, the focus moves from producing goods to providing services and utilizing knowledge as a primary form of capital.

Post-industrial economy - Wikipedia

en.wikipedia.org

So sticking to, or even worse- going BACK to that economic model- is not going to help economic growth, especially for an already advanced modern economy like the US. Basically if you keep doing what you did in the 1950s, you're going to have the GDP of the 1950s economy. Do you think that's desirable, or wise?

I do not believe in a service economy. Period.

 

[ataraxia]

I do not believe in a service economy. Period.

I see. So I assume that's just an assertion of personal feeling, and not something you would be interested in discussing or defending rationally?

 

[bomberfox]

It is not that simple. Re-education by itself is hard and not something that all will do by default. You can't blame the people on mass for all not taking it. THe other problem is that they will have to start from the bottom or semi-bottom then in a more advanced age lets say. And finally, there are not that many super high paying service jobs also. Realistically places for Science, research, IT, etc are also limited especially the higher you wanna go.

About 19th century this is also partially my argument. I didn't really wanna fully add it but yes, it is a road to nowhere that will also lead you back to post-industrial economy to proceed further basically. So Trump way looks like a circle backwards and then inevitably to the same thing just with a lot of extra steps and lost wealth to try to regain it again.

We should be paying people more then.

 

[TypicalRussian]

I see. So I assume that's just an assertion of personal feeling, and not something you would be interested in discussing or defending rationally?

No I can defend why, a service economy is a death spiral, Post-Marxists understood this in the 90s

 

[bomberfox]

As asked above, sure macroeconomics are not everything but averages are also very very important and in general macro economics is also not wrong. The problem is obviously it doesn't account for many things more so than it is wrong. Because historically it had other job than to account for everything or connect the economic realm to the societal/political realm.

In a sense it is a flaw but it is by design. The flaw part is that political decisions guide economic development or fall in a lot of cases and you just can't be non-accepting of that. Just growing wealth is much easier than growing wealth that benefits the society as a whole or vast majority of society.

From a pure macro-economic standpoint, like a really utilitarian standpoint, a heavily corrupt government in to slavery and total abuse of its population that is forced to work 20 hour work days would be okay as long as the total wealth grows and averages grow (Yes an exaggeration for obvious reason to deliver a point)

Macro economics treats the economy not as a social system but as a machine that needs a few levers adjusting. It takes no notice of economics from a systemic perspective and GDP itself for example is a pretty good example of the failings of many macroeconomic frameworks. There is no denying macroeconomics is a very useful framework but the fact that it is often the sole framework of analysis is a bit disturbing.

 

[JohnRawls]

I do not believe in a service economy. Period.

You are posting this on the internet, hosted by cloud service providers, while posting it from either your windows computer or android/Iphone all of which are services. You might not believe in it but the service economy sure as hell doesn't care.

 

[TypicalRussian]

Macro economics treats the economy not as a social system but as a machine that needs a few levers adjusting. It takes no notice of economics from a systemic perspective and GDP itself for example is a pretty good example of the failings of many macroeconomic frameworks. There is no denying macroeconomics is a very useful framework but the fact that it is often the sole framework of analysis is a bit disturbing.

All of that comes back to applying Newton's laws of Physics to human systems. It literally took huge efforts to understand the human body NOT as a machine, forget economics.

 

[JohnRawls]

Macro economics treats the economy not as a social system but as a machine that needs a few levers adjusting. It takes no notice of economics from a systemic perspective and GDP itself for example is a pretty good example of the failings of many macroeconomic frameworks. There is no denying macroeconomics is a very useful framework but the fact that it is often the sole framework of analysis is a bit disturbing.

Yes that is the core of my argument in the first posts if you read between the lines.

 

[bomberfox]

Yes that is the core of my argument in the first posts if you read between the lines.

I hope to add to it