Why the economy sucks
 

It's late so this post will probably ramble some. Forgive me. I'll attempt to clean it up or at least clarify the unclear parts tomorrow.

There's a lot of arguing between the Austrian school and Keynesians right now about whether fiscal stimulus works. It requires quite a bit of data-fudging to pretend that the Great Depression wasn't alleviated by Roosevelt's policies (Amity Shlaes and her ilk focus on overall private employment, which is misleading since the New Deal wasn't designed to improve private farm employment but rather to make food prices affordable, a measure which directly contradicted the goal of improving overall private employment; however, if one focuses either on private nonfarm employment or overall employment including government employment, then employment improved by 10% from 1933 to 1937, when Roosevelt temporarily abandoned the New Deal to attempt to balance the budget - a remarkable improvement by any standard. GDP improved similarly). However, the Austrian vs. Keynesian debate misses a large part of the point entirely.

This isn't the same country it was in 1933. We had a solid manufacturing sector and a large trade surplus at the time, even if our economy was in the shit can. These days we've outsourced all our jobs. Paul Craig Roberts, an architect of Reaganomics, has in recent years joined the list of notable Republican strategists who have abandoned the party (another notable example is Kevin Phillips, an architect of Nixon's Southern Strategy and the author of The Emerging Republican Majority who became one of the sharpest critics of the Bush administration), and his article on Counterpunch Tuesday argues that the main reason the economy's remained in the shit can is because we gave away all our jobs to China, India, and the rest of the former Third World:I see little way to dispute this premise. An economy will not recover efficiently when the majority of people living in it barely make enough money to sustain themselves. Of course, the very idea of reversing globalisation is nothing less than heresy these days, despite the fact that it depends on fossil fuels that have been ravaging the environment for shipment of product and outsources labour to countries with known human and labour rights and environmental abuses with which the U.S. simply can't hope to compete. The idea of redistributing wealth to the poor is similarly heretical; despite the fact that food stamps, unemployment benefits, and other forms of assistance to the poor have been shown in economic studies to return as much money to the government through taxes as they cost, there is little chance of them becoming commonplace; they are described as "lacking political support," which means that the rich people who run our economy have no desire to let them be extended any further than they already have been.

The consolidation of power into the hands of a few powerful corporations has been rarely noted, but it was one of the most detrimental policies leading to an economic crash. A handful of gigantic firms got themselves so overleveraged and interwove their assets so completely that by the time it became apparent that the entire edifice had been built upon quicksand, there was no way to prevent an economic collapse. It's not just in the financial industry that businesses have become consolidated, though; it's everywhere. This trend is so complete, and so universally unnoticed (Barry C. Lynn* is one of the few who gets it) that there is little chance of the competition on which capitalism thrives being restored. What we have is, in reality, an oligarchy in which a few powerful entities control the economy. This is directly antithetical to the capitalism advocated by Adam Smith, in which he envisioned numerous small firms competing against one another. Smith's distrust of the upper class, while often ignored now, is hard to miss:

• "In a society of an hundred thousand families, there will perhaps be one hundred who don't labour at all, and who yet, either by violence, or by the more orderly oppression of law, employ a greater part of the labour of society than any other ten thousand in it. The division of what remains, too, after this enormous defalcation, is by no means made in proportion to the labour of each individual. On the contrary those who labour most get least. The opulent merchant, who spends a great part of his time in luxury and entertainments, enjoys a much greater proportion of the profits of his traffic, than all the Clerks and Accountants who do the business. These last, again, enjoying a great deal of leisure, and suffering scarce any other hardship besides the confinement of attendance, enjoy a much greater share of the produce, than three times an equal number of artizans, who, under their direction, labour much more severely and assiduously. The artizan again, tho' he works generally under cover, protected from the injuries of the weather, at his ease and assisted by the convenience of innumerable machines, enjoys a much greater share than the poor labourer who has the soil and the seasons to struggle with, and, who while he affords the materials for supplying the luxury of all the other members of the common wealth, and bears, as it were, upon his shoulders the whole fabric of human society, seems himself to be buried out of sight in the lowest foundations of the building." (early draft of The Wealth of Nations)
• "...what improves the circumstances of the greater part can never be an inconvenience to the whole. No society can ever be flourishing and happy of which the far greater part of the numbers are poor and miserable." (Wealth of Nations Book I, Chapter VIII)
• "Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people." (Wealth of Nations Book I, Chapter IX)
• "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." (Wealth of Nations Book I, Chapter X, Part II)
• "The rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin." (Wealth of Nations Book I, Chapter XI)
• "All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind." (Wealth of Nations Book III, Chapter IV)
• "Wherever there is great property, there is great inequality. For one very rich man, there must be at least five hundred poor, and the affluence of the rich excites the indignation of the poor, who are often driven by want, and prompted by envy, to invade his possessions." (Wealth of Nations Book V, Chapter I, Part II)
• "Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all." (Wealth of Nations Book V, Chapter I, Part II)
• "This disposition to admire, and almost to worship, the rich and powerful, and to despise, or, at least neglect persons of poor and mean conditions, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages." (The Theory of Moral Sentiments Part I, Chapter III)

What can be done? We could spend on infrastructure, as was done with the Works Progress Administration in the New Deal. We could also start redistributing wealth somewhat. Rich people usually got rich by not spending money. Giving them more money isn't going to cause them to start spending massively more, no matter what they claim. (I'm reminded of the Carlin quote, "Conservatives say if you don’t give the rich more money, they will lose their incentive to invest. As for the poor, they tell us they’ve lost all incentive because we’ve given them too much money.") On the other hand, poor people pretty much have to spend money, thanks to their economic misfortune; thus, any money given to them is likely to be spent, especially if it's specified that said money needs to be spent.

However, these solutions would be putting a Band-Aid on the real problem. For starters, any firm that is "too big to fail" should be too big to exist. A host of economists from Nassim Nicholas Taleb to Nouriel Roubini agree on this point; unfortunately, the chances of anything being done about the matter without a more informed and politically engaged populace are almost nil. Furthermore, trade policy in the United States needs to be redesigned. I'm not in favour of complete protectionism; trade is good under certain circumstances. The problem is that this has been generalised to "All trade is good," which isn't really the case. Taxes on imports should be designed more intelligently to encourage sustainable development and fair labour policies; the United States can't hope to compete with countries where pollution is rampant and workers make $.25 a day.

At any rate, it's worth noting a Gallup poll two months ago showing sixty percent of the populace supporting a new stimulus. While such a measure would, as mentioned, only be putting a Band-Aid over the problem, it's probably better than nothing. But no one should fool themselves into believing that such a measure will fix the underlying problems that ruined our economy to begin with.

*Yes, I realise the irony of linking to Amazon in a post ranting about large corporations. Amazon has better reviews. Go buy it from Powell's or some other independent retailer after you're done reading them.

Re: Why the economy sucks
 

I am aware I am not an economist, but I wonder sometimes if buying things from local establishments is even beneficial as I figure someone in the community will eventually send that same spent cash out of the area.

And with that in mind I come to think that in the long run becoming a miser would be better than focusing on stimulating the economy and that to stop consuming at all might bring about a personal advantage.

Is this thinking flawed? I suppose it might raise unemployment levels. Is it better to just hold onto spare cash or should we hand it off to others who need it? I mean if it is true that the rich do not spend surplus, it can't help to spend the money they'll eventually get, right?

It seems like the only solution to the dilemma would be to convince the general poor population to stop buying from corporations, but it is from there people purchase their necessities for affordable prices.

So unless we could convince most struggling Americans to change where they buy we are royally screwed.

Re: Why the economy sucks
 

I am also not an economist but...until such time as the money leaves the local economy it is being spent several times.

No, because the rich don't actually "stimulate" the economy. The ones that mise the money don't keep the spend cycle going. Also, in the long run, if you aren't constantly recirculating the cash it won't come back to you ever.

If you are one of the 0.5% with fortunes in excess of a billion dollars then no, spending your cash won't get you rich. If you're in the other 99.5% spending your cash won't get you rich either but at least you'll have contributed to someone else's paypacket. And they in turn will stimulate someone else's and so forth until it comes back to you. As the saying goes; buy local, think global.

That may well help, but as long as the poor are poor and the corporations are offering them cut price goods they will, nay, they have to keep shopping there.

I don't know what the answer is. As long as average Americans and Australians have their retirement funds tied up in stocks there's no solution that will keep the average person out of monstrous debt.

Re: Why the economy sucks
 

Interesting post, and a great deal to agree with, though

Of course the US can hope to compete; you pay workers $.24 an hour and let the pollution be worse. The West can't compete at current opulent levels, it's true.

Maybe it's becoming clear that the end result of globilisation is (ironically!) a realisation that our Western lifestyle of dirt cheap manufactured goods, fueled by cheap labour and hardship of other countries, isn't actually an equilibrium. Scary prospects if you like working for more than $.25 an hour, unless you're the guy (kid) in the sweatshop that made all my clothes.

Re: Why the economy sucks
 

As bothersome as it is to not be filthy rich - American life in general is pretty luxurious compared to so many others in way worse conditions. That can be easy to forget when the core value of a capitalist is to grab the most.

Re: Why the economy sucks
 

That's the point. If we want to go back to the way things were before, I suspect we'll need to tax such imports at enough of a rate to make them significantly less competitive, if not completely uncompetitive.

Yep.

Regarding spending, the Social Credit model of the economy (to which I was introduced by Heinlein's For Us, the Living) holds that capitalism is inherently inefficient because spending isn't 100%, which results in some businesses being unable to pay their debts to their banks, thus forcing them to lay off workers, which causes unemployment (Keynes, interestingly, made a similar argument, although naturally his solutions were entirely different). It's a convincing argument, although I'm not sure I like the solution any longer (I was, at one time, fond of it). At any rate, if everyone keeps holding onto money then the economy definitely isn't going to get better; although doing so will increase their short-term net worth, it will probably slow their long-term prospects for increased income. That said, I'm part of the problem; I haven't been spending much either. Food and the occasional music album make up almost the entirety of my purchases recently.

It's also worth noting that economics is a highly theoretical field. I honestly advise everyone to take all economic writings with a rather large grain of salt, because there's no empirical way to test economic theories (which is probably one reason economics causes such spirited debate). Certainly the correlation between economic policies and economic outcomes can be tested, but it's a case of post hoc ergo propter hoc reasoning; there's no saying some unknown factor unrelated to the economic policies didn't cause the change in economic outcomes. There's simply no way to run controlled experiments in economics. (Come to think of it, the same goes for politics).

Re: Why the economy sucks
 

I don’t think the rich are more miserly; they have the ability to invest/spend outside the US which the poor do not.

What I’m trying to figure out is as jobs continue to be lost, money continues to be drained from the economy, and those in power refuse to address the issue, what happens next?

Re: Why the economy sucks
 

Too many lessons from your mama?

:rimshot:

Re: Why the economy sucks
 

They are more likely to invest, that's true, but they're also a lot more likely not to spend or invest all or even most of their income. But it's also worth pointing out that investing doesn't usually put the money back into the economy immediately, so the point's still pretty much the same.

beats the shit out of me. I'm half-hoping for a revolution but I know people are too complacent to do that, and besides revolution often replaces the old system with something worse. Given the growth of the Tea Party movement I don't have any faith that a Second American Revolution would be particularly benign.

More realistically it would be nice if people stopped voting in Republicans and Democrats but that's obviously not going to happen.

Re: Why the economy sucks
 

What the wealthy did with their tax cuts | let freedom ring's Blog

As I said, the rich are not more miserly. :D

Question: How is an illegal alien taking away a sub minimum wage job more a threat to the US then the above? Which hurts the defict more? :D

Re: Why the economy sucks
 

Brad DeLong's outlook. Spoiler: It's not rosy.

Re: Why the economy sucks
 

I had forgotten what a well-written piece of work this was. I'm glad it came to the top of the thread queue again, so I could re-read and enjoy it.
:popcorn:

Re: Why the economy sucks
 

Well, that's depressing. I was already thinking it's bound to get much, much worse before it gets better, but it's like a punch to the head when other people say it.

Re: Why the economy sucks
 

I resurrect this thread because a new study reveals that the public has dramatically different priorities than either the House of Representatives or the Obama administration. Shocking, I know. Meanwhile it's pretty apparent to anyone with two brain cells to rub together that the budget proposal is going to kill jobs, and indeed an analysis by Moody's (cited in the same article) concludes that this is exactly the case. FUCK YEAH CAPITALISM!

Re: Why the economy sucks
 

Oh, I found it to be a great post. I read through it twice.

One common thread uniting every policy PRC complains about is likely a callous shortsightedness. I think David Brooks nailed it in his column The Power Elite (NYT, February 18, 2010). Brooks' “meritocratic elite”--heavily Jewish, as opposed to just wannabe Jewish like the old Protestant elite--is really more interested in short-term profit-making than anything else, including giving a shit about the long-term national interest.

Of course ultimately the national interest is that of the emerging human nation. The Jewish power elite doesn't identify with humanity, though; they just mouth the rhetoric when it is "good for the Jews." Which is to say KA-CHING!

Ironically, taking the lead in moving beyond the short-sighted economic shit and war-for-profit is going to be a mission for Aryans. White gentiles are the least racist and ethnocentric people in the world, so they're most likely to genuinely identify as pan-humanists first. Most Jews, on the other hand, if they really were more than superficial humanists, would be horrified by Israel or at least have severe reservations about it. Instead, the are more likely to expertly lie in an attempt to excuse Israel's every excess.

Basically, America has become a glorified economic zone dominated by shopkeepers and swindlers who really can't be trusted.

Re: Why the economy sucks
 

45 words in (not including the words in the parentheses) to get to "Jewish". Keep it up Sophia. Shit anti-Semitism and racism everywhere. We will, one day, god willing, recognise your brilliance.

Re: Why the economy sucks
 

Fixed it for you. No thanks necessary.

Re: Why the economy sucks
 

Have some anyway.

Re: Why the economy sucks
 

They're free. What the fuck do I care. :shrug:

Re: Why the economy sucks
 

It's clear to most that the plutocrats have been at their kleptonomic best, looting the public till under the guise of crisis management and unfettered markets. The problem is, those elected to promulgate, publish and enforce regulations are the very people who are purchased outright once they have come to be elected. So, it becomes 'rinse & repeat' with a new set of toadies.

Meanwhile, asset looting continues.

Re: Why the economy sucks
 

Krugman on unemployment and the lack of concern over it from political elites. Some choice quotes:

Re: Why the economy sucks
 

Re: Why the economy sucks
 

Glad to see that I am not the only one who thinks "trickle down economy" is stark staring nonsense! It has been a pet peeve of mine for years that someone could try to sell such blather to a whole nation.

Re: Why the economy sucks
 

Don't forget it was the nation that bought it. So. You know. There's that part of the equation.

Re: Why the economy sucks
 

Goldman Sachs CEO Lloyd Blankfein may face federal prosecution for his role in the financial crisis. Can I get a "Hell yes"?