Monday, June 22, 2009

Our Real economic crisis

We are undergoing a "false dawn" economically right now. The stock market has stopped crashing and occasionally jumps up a bit as a few optimistic individuals think the bottom has arrived and they can make big profits by investing at this time. Everyone in the business media is blaming last fall's world-wide market freeze and collapse on the subprime mortgage scams. We know about them now so they are over, right?


Not hardly. First, and not most important, the banking industry is strongly resisting the critical changes in supervision needed to avoid such scams and economic idiocies in the future, so another economic collapse is just a matter of time. The Republican conservatives have decided that they have to oppose Obama and the Democrats in order to regain power for themselves, so they are in no mood to think rationally about anything but their own power and politics. But second and much more important, the economical structural causes of our current problems are being hidden by the federal government's massive panicky financial giveaways.

Johathon Taplin posted a very illuminating article explaining how the very structure of our economy has been warped out of all good sense in the last three or more decades. He focuses on production capacity under-utilization, a lack of productive product innovation and the encouragement of too much consumer spending at the cost of savings. Here is a quote with some of his core ideas:
The Big Lie of the current economic debate is that we just went through a "hundred year flood"--that this was all caused by the Sub Prime mortgage crisis. But the problems of stagnation and capacity utilization have been increasing since 1975 when overall capacity utilization was at 86%. It hasn't been above 82% since 1995 and today it is below 77%. But the larger problem has been that we have misallocated our capital since the problems of economic stagnation first raised their head in the mid 1970's. Steindl knew there were solutions, but he doubted we had the political will to solve them.
With the 1976 republication of his Maturity and Stagnation in American Capitalism, Steindl allowed that technical innovation, product development, public spending, and research and development initiatives might provide the means to escape from investment inertia. Even so, he was extremely concerned that most accumulation strategies in mature capitalist nations would focus on military-industrial activity and war itself. Using both public and private investment funds for other purposes, while obviously desirable, would be "exceedingly hard" given "the workings of political institutions."

Reagan's solution to stagnation was Military Keynesianism. Instead of investing in alternative energy solutions or more efficient transportation when the Arab Oil Embargo was staring us in the face, he chose to create the largest military expenditure in peace time history with borrowed money. And what do we have to show for it? Our current economic crisis.
Broadly speaking this is all caused by too many politicians who get elected to office based on showing the current administration has failed to accomplish important tasks. Not a bad idea, until the outsider politicians begin making up imaginary and unreal problems just to win elections. So a lot the current economic set of problems stem from economic ignorance and ideology held by many of our politicians in power.

A great deal of the current economic problem is based on the Republican and conservative faith that everything is local and that any overall systemic evaluation and regulation of the economic systems themselves is pure oppression. The "Free Market" ideology is a political gimmick designed to prevent essential regulation on the basis that any regulation leads down the slippery slope to central government oppression. But avoiding any evaluation and dissemination of recognized systemic problems means that local economic problems are ignored and allowed to spread to other localities.

In other words, the political demand for localism means that systemic problems are ignored. This is manifested in the absolute refusal of the Republicans to allow the federal government to even investigate many systemic problems and put out advisory statements (non-regulatory white papers) for fear of the slippery slope leading to actual regulation.

Taplin's point that the economy has been steered into the inherently nonproductive investment on the military-industrial complex is extremely important. I would add to that the fact that in America banking and financial services have replaced manufacturing and production as the most important parts of the economy. A lot of this has involved shipping American jobs overseas in order to expand financial services.

Another problem has been the extreme antilabor bias of the American business culture. Executives see the most important part of managing their businesses is to prevent their employees from organizing and making demands for their collective services. Since these businesses cannot exist without labor because they do all the actual productive work, if the workers are organized they can criticize bad bosses and bad labor policies. Since the American business culture also demands that workers obey commands and not talk back or criticize the bosses, this becomes intolerable. (Not that there are not bad labor leaders also, but they are dwarfed in magnitude by the numbers of bad, ignorant and uncaring managers.)

The fact is, however, that America's economy is like a house built on a bad foundation. When a shock hits the house, it is much more likely to collapse than one with a stable foundation. But the current resistance to correcting the instabilities in America's economic foundation are immense and increasing along with the belief that the economic crisis is over.

Unfortunately, it's not over. It's only being postponed to give us time to shore up the real problems. It's resistance to recognizing and correcting those problems that is currently the real danger.

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