Nouriel Roubini,  Re-Animator

We're not sure if there actually ever was a plot for Nouriel Roubini to lose. In case you haven't noticed yet, he's a fairly typical Keynesian establishment figure. In spite of having been one of the few mainstream economists who correctly predicted that the housing bubble would end in tears, he is otherwise never straying very far from the officially accepted economic orthodoxy. As an aside, that was not really a particularly difficult prediction to make. However,  the vast bulk of mainstream economists didn't make it, so it is a bit like the story about the egg of Columbusbecause so few mainstream economists saw the trouble coming that should have been obvious to anyone with eyes, ears and an abacus (ten fingers would have done in a pinch), Dr. Roubini's timely pre-2008 calamity pronouncements of doom have become his rightful claim to fame.

Ever since, he has become the 'officially allowed to keep us all in a permanent state of fear' economist. 'Officially' allowed because he is not averse to recommending Keynesian 'cures' buttressed by Keynesian analysis. In short he's by and large not much different from the typical establishment quack, albeit a more colorful and at times more original figure. Note that he once worked as a courtier economist for the Federal Reserve – in the department where the rest of the professional apologists for the fiat money system are cooped up and earning way above market wage rates that are deviously extracted from all holders of dollars via the Fed's inflationary policies (he also worked for the IMF, the World Bank, the Bank of Israel, the Council of Economic Advisors and the treasury department, while also teaching at Yale; in short, his vita betrays that he is in fact the quintessential establishment figure).

In that sense, we do actually have great respect for Roubini's decision to abscond and become independent – contrary to his former colleagues, he actually does now earn what the market will pay him.

Alas, although he seems to be eager to court controversy from time to time in order to remain newsworthy, he has not mended his Keynesian ways.  Also, the accuracy of his predictions has become somewhat more erratic. For instance, he's been warning people off gold for at least the last $800 of its advance (no surprise there – as far as we know not a single contemporary Keynesian actually understands gold).

However, his forecasting prowess is not really our beef with him. We know all too well that the forecasting business is hazardous – although it is often fairly easy to recognize which outcomes fundamental developments should lead to,  it is usually quite difficult to accurately predict the temporal leads and lags involved, not to mention the occurrence of 'left-of-field' developments, better known as 'black swans' these days.

Our beef with Roubini is that he sometimes loudly proclaims nonsense that really makes our hair stand up. Such as when he once argued that a 'gold standard would lead to economic instability' which the fiat money system ostensibly 'prevents, because it affords the central bank the opportunity to intervene' (paraphrasing).

Well, harrumph. For someone who saw the mortgage credit crisis coming this is a remarkably naive and shallow analysis, but we suppose Roubini wants to stay 'well anchored' in the mainstream, sort of like Bernanke's 'inflation expectations'. It's as though he were now and then popping in to say, 'look here, I only wear half a tin-foil hat. The party line is safe with me.'

The Daily Belle accurately remarked at the time:


“He believes that a handful of bankers in a room consulting together can set the price of money more effectively than the invisible Hand. This is a form of price fixing. […]

The cognitive dissonance is startling, as is the realization that Roubini is held in such high esteem and has been named a top 100 global thinker. Roubini is supposed to be a hard-nosed proponent of the free-market, sound money and entrepreneurialism. But he is evidently and obviously a statist, a socialist who believes that groups of powerful people can make up prices for the market and then attempt to enforce them successfully. It would seem to be an economically illiterate position.”

 

Anyway, his latest revelation is even more startling – in an interview with the Wall Street Journal (video), after bemoaning the Keynesian standard canard of a 'lack of aggregate demand' (i.e., the infamous underconsumption nonsense that should have been forever banished from economics texts since Hayek's critique of Foster and Catchings in the late 1920's), he suddenly veers off into resurrecting Karl Marx and praising his alleged 'insights' about the destructive nature of capitalism and free markets. The 'money quote' from the interview:


“Karl Marx said it right. At some point capitalism can self-destruct itself because you cannot keep on shifting income from labor to capital without having excess capacity and a lack of aggregate demand,” Roubini said. “That’s what’s happening. We thought the markets work. They’re not working.”

 

Good grief! Well, no, Dr. Roubini, Marx did not 'have it right'. Here we want to  briefly point to an interesting discussion with one of our readers a few weeks ago (scroll to the comments section), where said reader took us to task for not making sufficient allowance for the fact that the statist establishment has appropriated a great many terms and in Orwellian fashion has turned them on their head so that they often mean an entirely different thing than they once used to mean. The 'politics of language' so our reader argued, must be considered before framing an argument, because the enemy has sown so much confusion that many arguments need careful vetting of the semantics employed so as to ensure they are not misunderstood.

We are certainly not strangers to this – as we have often pointed out in these pages, the term 'inflation' has been a victim of such obfuscation tactics. Today people think 'inflation' means an 'increase in prices', or often even more narrowly, an increase in consumer goods prices. This obfuscation is the result of decades of propaganda – in reality, inflation used to signify 'an increase in the supply of money'. By substituting in modern-day usage one of the effects of inflation for its cause, the cause has become obscured, so that central banks can nowadays cheekily pose as 'inflation fighters' even though they are the very engines of inflation. We mention this because the term 'capitalism' has become equally loaded.  When economists back in Mises' day talked about capitalism, it was clear that they referred to the free market system. Today we have to differentiate between free market capitalism and state capitalism, i.e. the system currently in place. Consider how Roubini conflates the current 'version' of capitalism with 'markets' in the above quote. He advances not only Keynesian underconsumption nonsense, he also reminds us that 'the market doesn't work', a central Keynesian tenet that is the main argument for the alleged necessity of state intervention. However, once state intervention is practiced, there is no longer an unhampered free market economy. One can not blame what doesn't even exist for the ills that have befallen us – and yet, this is precisely what Roubini is trying to do.

The real reason for growing wealth inequality (what Roubini calls the 'shifting of income from labor to capital') is the very central bank-led inflationary fiat money system that Roubini simultaneously sotto voce supports. However, this has nothing to do with 'capitalism' or 'markets'. Essentially Roubini asserts that the problems and failures caused by the very socialist central economic planning institution that he fully supports should be blamed on the market.

In an unhampered free market system the 'shifting of incomes' Roubini criticizes could not possibly happen. As regards Karl Marx, his economic theory was based on the 'labor theory of value', which was thoroughly debunked by Carl Menger just one year after the publication of 'Das Kapital'. Marx also believed in Hegelian historical determinism and held  – without supplying any rational explanation for this belief (Mises speculated that Marx was likely informed by 'an inner voice')  –  that history, with the help of some mysterious force, would inevitably lead to the establishment of socialism at its 'end point' so to speak. Capitalism, so Marx, would self-destruct for the very reason Roubini cites.  As Ludwig von Mises noted in 'Theory and History':


Marx never embarked on the hopeless task of refuting the economists' description of the working of the market economy. Instead he was eager to show that capitalism must in the future lead to very unsatisfactory conditions. He undertook to demonstrate that the operation of capitalism must inevitably result in the concentration of wealth in the possession of an ever diminishing number of capitalists on the one hand and in the progressive impoverishment of the immense majority on the other hand. In the execution of this task he started from the spurious iron law of wages according to which the average wage rate is that quantum of the means of subsistence which is absolutely required to enable the laborer to barely survive and to rear progeny.

This alleged law has long since been entirely discredited, and even the most bigoted Marxians have dropped it.

But even if one were prepared for the sake of argument to call the law correct, it is obvious that it can by no means serve as the basis of a demonstration that the evolution of capitalism leads to progressive impoverishment of the wage earners. If wage rates under capitalism are always so low that for physiological reasons they cannot drop any further without wiping out the whole class of wage earners, it is impossible to maintain the thesis of the Communist Manifesto that the laborer "sinks deeper and deeper" with the progress of industry. Like all Marx's other arguments this demonstration is contradictory and self-defeating. Marx boasted of having discovered the immanent laws of capitalist evolution. The most important of these laws he considered the law of progressive impoverishment of the wage-earning masses. It is the operation of this law that brings about the final collapse of capitalism and the emergence of socialism. When this law is seen to be spurious, the foundation is pulled from under both Marx's system of economics and his theory of capitalist evolution.

Incidentally we have to establish the fact that in capitalistic countries the standard of living of the wage earners has improved in an unprecedented and undreamt-of way since the publication of the Communist Manifesto and the first volume of Das Kapital. Marx misrepresented the operation of the capitalist system in every respect.

 

(emphasis added)

Well, Roubini has just revived the argument 'even the most bigoted Marxists have dropped'.  As to which system has prospered – communism or the market economy – the answer has already been given by history.  Socialism wasn't quite as 'inevitable' as Marx and Engels had believed.

Marx himself may not have 'embarked on the hopeless task of refuting the economists' description of the working of the market economy' as Ludwig von Mises averred – he evidently left that particular task to Nouriel Roubini.

 


 

Nouriel Roubini: 'the market doesn't work'

(Photo via charlierose.com)

 


 

Roubini's new buddy Karl Marx

(Photo Source: Wikimedia Commons)

 



Dr. Gruber, Dr. Gruber, wie geht es dir? You killed him, Dr. West!'  'Kill him? I didn't kill him! I gave him life!'

(Image source: allmystery.de)

 


 

 

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9 Responses to “Karl Marx Resurrected – Let’s Quickly Bury Him Again”

  • Armando:

    Hi Pater, Since I just registered, I should take advantage of the opportunity to mention how much I enjoy your blog – it is both tremendously informative and entertaining.

    With respect to Roubini and his ilk: While clearly Communism (and its close cousin Socialism) have been repeatedly shown to be failures, there seems to be no end of people that support them. One would have thought that these world views would have died out after the clear failure of the USSR, but one would have been terribly wrong! Communist/Socialist thought seem to be alive and well, even while we are in the midst of a crisis primarily created by these failed ideologies. Why can’t people think straight? It makes you wonder if there is any long-term hope for the human race. It would not surprise me if someone told me that 500 years from now there would still be individuals celebrating the “genius” of Marx!

    • Floyd:

      Thanks for the excellent blog, Pater.

      Regrettably, it is about incentives to use OPM (Other People Money).
      Wouldn’t it be great to get SS+MC paid by others?
      Wouldn’t it be great to get my kids to go to public schooling paid by others?

      At any given point, there are many standing to benefit from OPM.
      Politicians get elected by promising and enabling this.
      Bureaucrats make their livening by administrating this (and making the case for more).
      The obscenely rich often benefit from this dynamics (thus being the state-capitalists).

      Sometimes I wonder whether truly free-markets are unstable, in the sense that they tend to drift away from being truly free.
      This would be akin to unstable equilibrium, once pushed away from negative feedback it drifts away from equilibrium due to positive feedback.

      Once certain party wields political clout, it abuses it to tilt the table to its side.
      We have seen this recently occurring to extremes.
      Albeit, the positive feedback loop accumulating contributions are usually rather gradual along many years. The 2008 GFC is arguably an exception being a leap step in pushing away from free markets.

      2c

      • Yes, it feels like one is tilting against windmills at times, but we must keep the faith in spite of that: Remember that Mises during his lifetime saw the biggest setbacks to liberty imaginable – and yet, he never gave up and never lost his zest and optimism. We should all hew to his example.

    • Thanks for the kind words, and you are quite right – these ideas refuse to die in spite of the fact that we have both theoretical and empirical proof that communism is simply unworkable – not to mention that it once transformed half of the world into a brutal prison camp.
      This is why I frequently spend some time and effort reminding people that it has been refuted long ago.

  • vicious circle:

    Great blog, very informative. Please post an article/comments on CEE nations (you said you would :). Thank you.

  • The idiot must have his head in a 55 gallon drum that has been beaten on instead of reading economic history. There are only 3 things I know that have messed up capitalism and that is war, natural disaster and the over extension of credit, the later being the most destructive. Amazing that these guys have been brainwashed by banker designed education to fail to see the forest for the trees.

    The disparity of wealth has entirely been created by this debt bubble and has very little to do with anything other than the excessive flow of credit to finance consumption and government interference directing capital into profitable boondoggles that turn out to be worthless. They are sold out under government and Wall Street promotion with the poor investing middle class left holding bag after bag. When the shine comes off, Greenspan, Bernanke and the various governments around the world move in and blow another bubble, the working class left worse off due to the wasted capital and lost savings.

    There is one thing that Marx and his supporters missed. Some of these guys do get it right, but they miss the big picture. In what I consider reality, the capitalist puts him money back into his business and the investment goes to pay the workers who then become the customers of him and other capitalist. I don’t believe individuals become extremely wealthy in capitalism, except in rare occasions. Most of the big wealth is either created out of leverage and credit inflation or through state supported monopolies. What is considered a capitalist today is someone who is actually liquidating his company through stock sales or loading the company up with credit, ala the corporate raider. Wall Street calls this creative destruction, while in reality it is merely a modern form of looting.

    • amun1:

      “Wall Street calls this creative destruction, while in reality it is merely a modern form of looting.”

      It’s nice to see a growing number of people acknowledge the fact that Wall Street, modern corporate executives, and capitalism have very little in common. Unfortunately, Wall Street is still seen as the icon of capitalism by the average person and therefore Wall Street’s looting is considered capitalism’s failure. That’s the most disappointing part of this entire crisis. I’m afraid we’ll learn the exact wrong lessons and it’ll take generations to recover.

    • Indeed, in a true free market system, wealth disparity could never become a problem. Real incomes would increase over time for everyone. There would also not be any institutional unemployment, so most of the perceived evils of our time would disappear. And it is clearly the monetary system in place at the moment that is at the root of our predicament.

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