Saturday, February 11, 2012

Why The Economy Isn't Getting Better

Naively, people keep thinking that the current economic downturn for the middle class will rebound and our prior glories will be restored.  If only we vote for the right mainstream candidate, we are told, then everything will get better.  Or maybe we should just wait it out.  Nonsense.  A better question is, why should the economy improve?  There is nothing leading the economy in that direction.  The masters of the universe--the heads of giant corporations and their purchased politicians have no interest in improving the economy in any kind of real way because it would cost them money and cut into their profits.

The state of the economy improves the lives of the middle class when it is producing real value.  After World War II, the economy was based upon industrial manufacturing.  America actually made things.  It took labor and capital, mixed them together, and produced something of additional value.  Over the last thirty years, corporations and management have worked with politicians to de-industrialize America.  Manufacturing was abandoned and rebuilt in China, Mexico, India, and other Third World nations.  The middle class lost their jobs.  Union activity was crushed.  These changes reduced labor costs for corporations and brought great wealth to their shareholders.  The problem is that most Americans aren't shareholders.  Most Americans were middle and working class folks who used to earn their money working in factories.  With no money to spend and no new jobs, demand for products and services plummeted.

It used to be that the best and brightest mathematicians and physicists were recruited to work for NASA and high tech industries building things like computers, lasers, and the Internet.  Now Wall Street recruits these folks to use mathematics and game theory to invent new ways to game financial markets to get, but not make, money.  Nothing of value is actually created.  It becomes a way to game the system.  The housing bubble and meltdown of 2008 is a perfect example.  The financial industry created credit default swaps and derivatives.  Unconcerned because they knew the government would bail them out, the top banks and lending institutions took excessive risks and crashed the financial system.  In the end, the housing bubble created no new value.  It was a speculator's game.

For the last thirty years, the so called "improvement" in the economy was all a fiction, not a reality.  One bubble after another, nothing based on the creation of real value.  First was the dot com bubble, which imploded, then the housing bubble, which also imploded.  All during this time, the factories were being closed.  No new, real jobs were created.  America is becoming a nation of fast food workers.

To help make things even worse, taxes for the rich were cut and basic services were slashed.  The infrastructure of America--it's schools, roads, bridges, and the like are falling apart.  Local police and fire departments are facing budget crises.  Assistance to the poor to help for home heating and to feed hungry children were reduced and eliminated.  Welfare reform, under the guise of punishing the "lazy", actually served to destroy wages for the bottom half of the market because the supply of workers then outstripped the demand for low skill, low wage jobs.  This served to make everyone poorer.

Tax cuts, combined with two unfunded wars, led to massive budget deficits.  As we speak, Social Security is being de-funded through a cut in the payroll tax.  This will later mean that seniors and the disabled will have nothing to survive on when they most need it.  The rich will push for Social Security to be privatized, risking the economic security for those most in need.  New stock market bubbles will implode and leave people hungry and homeless.

America is now a country that doesn't make things.  It manipulates markets by playing shell games and creating bubbles that burst every few years.  China is growing at 10% each year.  The standard of living is increasing rapidly in China.  Ironically, we hear all the time about how communism doesn't work, and that capitalism is the answer to all of our problems.  First of all, the U.S. is not a capitalist country.  It cannot be capitalist when it provides socialist style bailouts to banks which are so large they are like monopolies and trusts.  America cannot be capitalist when it insures the existence of banks which would fail without government welfare.  China, the supposedly communist country, carefully plans its economy and encourages growth by subsidizing upcoming industries like solar power and high tech manufacturing.  The bottom line is that China is creating real value, and that will be a threat to America eventually.  The problem is that American corporations--the masters of the universe--cannot do anything but invest in short term strategies.  If you are the CEO of a large corporation and you don't outperform each quarter, you are fired and replaced by someone who will.  Shareholders don't have patience for long term investment anymore.

If America really cared about the free market and capitalism, it would not have bailed out the big banks.  It would have let those who couldn't cut it fail.  The market was never given the chance to correct itself.  In America, capitalism is like tough love--it's only for Main Street, never Wall Street.  Tough love is also for the poor, who must learn to live without luxuries like food, medical care, and heating.  This builds character.  But Wall Street speculators are given bonuses of a million dollars subsidized by public tax money.  This is American "capitalism" at its best.

There are solutions to the problems.  We could immediately increase taxes on the rich, use the money to hire people to repair America's crumbling infrastructure, fund schools so our children have the knowledge to work in a high tech and advanced economy, and balance the budget.  We could create a single payer health care system that is more efficient, involves less fraud and abuse, and one that rewards health outcomes instead of paying for more and more medical procedures which are unneeded.  This would also help American business be more productive compared to all the other industrialized nations which provide health care for all at half the cost of the American system with superior health outcomes.  Right now, we are 39th in the world on health care outcomes.

The problems can be solved, but they won't be because America's election system is hopelessly corrupt.  We need a constitutional amendment calling for the end of private money in politics, even if this means restricting free speech rights.  The corrupting influence of big money has destroyed American democracy.  This is something that both the Occupy Wall Street Movement and the Tea Party can both agree on.  Change can only come from the bottom up.  Relying on a political hero who preaches hope and change and doesn't do anything, or relying on an empty suit with plastic hair, isn't the solution.

We the people, we are the answer.


  1. When you look at the growth of China is it possible that there growth is a bubble? How can their growth be sustainable when the Chinese treat their citizens so poorly and pollute their environment the way they do?

    1. I think there is a real estate bubble going on there, which accounts for some of the so called "growth." But much of it is real growth in the economic sense. This overall has been improving the standard of living for the Chinese. But this has come at a real human and environmental cost as well. If the environmental damage is as serious as some make it out to be, the standard of living will indeed decrease if the waterways and the air are polluted without reasonable safeguards taking place. The factory workers, while poorly paid by American standards, do make more than they would as farm workers. The problem is that they are forced to work very long hours and under dangerous conditions. In China, they actually make things. They take labor and capital and produce real value. Much of the profit is going to U.S. shareholders, but so much money is being made that the workers and the local economy can't help but do better as well. I agree that the growth cannot be long term sustainable if they don't pay proper attention to the human and environmental damage that is being caused.