“The Twilight Of Meaning” As Capitalism Destroys Itself — Understanding Economist Nouriel Roubini’s Comments

August 16th’s Faustian urGe quoted influential and astute economist Nouriel Roubini’s statement/warning to the Wall Street Journal:

“…we’ve actually had a worsening because we’ve had a massive redistribution of income from labor to capital, from wages to profits…

Karl Marx had it right. At some point, Capitalism can destroy itself. You cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else’s income and consumption. That’s why it’s a self-destructive process.”

A most wonderful further explanation is found in a literary article, The Twilight of Meaning by John Michael Greer at The Archdruid Report

And this wonderful explanation goes…

Back in the 1930s, a substantial majority of the American rich realized that the only way to stop the rising spiral of depressions that threatened to end here, as in much of Europe, in fascist takeovers was to allow a much larger share of the national wealth to go to the working classes. They were quite correct, because it’s wages rather than investments that are the real drivers of economic prosperity.

The logic here is as simple as it is irrefutable:

  • When people below the rentier [high net wealth] class have money, by and large, they spend it, and those expenditures provide income for businesses. Rising wages thus drive rising business income, increased employment, and all the other factors that make for prosperity.
  • On the other hand, when more money shifts to the rentier class – the people who live on investments – [Roubini’s “massive redistribution of income from labor to capital, from wages to profits…] a smaller fraction goes to consumer expenditures, and the higher up the ladder you go, the smaller the fraction becomes. Close to the summit, nearly all income gets turned into investments of a more or less speculative nature, which take it out of the productive economy altogether. (How many people are employed to manufacture a derivative?)

This recognition was the basis for the American compromise of the 1930s, a compromise brokered by the very rich Franklin Roosevelt and backed by a solid majority of financiers and industrialists at the time, who recognized that pursuing their own short-term profit at the expense of economic prosperity and national survival was not exactly a bright idea.

Yet this not very bright idea is now standard practice across the board on the upper end of the American economy. The absurd bonuses “earned” by bankers in recent years are only the most visible end of a pervasive culture of executive profiteering, aided and abetted by both parties and shrugged off by boards of directors who have by and large misplaced their fiduciary duty to the stockholders. This and other equally bad habits have drawn a pre-1930s share of the national wealth to the upper end of the economic spectrum, and accordingly produced a classic pre-1930s sequence of bubbles and crashes.

None of this takes rocket science to understand; nor does it demand exceptional thinking capacity to realize that pushed too far, a set of habits that prioritizes short-term personal profits over the survival of the system that makes those profits possible could very well leave top executives dangling from lampposts—or, as was the case in the very late 19th and early 20th centuries, so common a target for homegrown terrorists that people throwing bombs through the windows of magnates’ cars was a theme for music-hall ditties.

What it takes, rather, is the sense of context that comes from shared narratives deriving from the pastin this case, the recognition that today’s economic problems derive from the policies that caused the same problems most of a century ago would probably be enough.

Still, that recognition—more broadly, the awareness that the lessons of the past have something to teach the present—requires a kind of awareness that’s become very uncommon in America these days, and I’ve come to think that the main culprit at all levels of society is precisely the feedback loop mentioned earlier, the transformation of culture into marketing that exists for no other purpose than to sell more copies of itself.


“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”

John Steinbeck


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