Universal Translator

Thursday, June 9, 2011

Also, Too


Following up a bit on yesterday's deconstruction of David Brooks and his disingenuous attempt to frame the Democratic and Republican approach to Medicare as a philosophical choice between "bottom-up" engineering and "top-down" central planning . . .

It occurred to me that the right wing in this county has a sort of schizophrenic take on how to address economic problems. On the one hand, they are filled with rhetoric about how "small businesses" and "entrepreneurs" are the heart and soul of our economy, and that if we only unleash the forces of the Free Market then those forces will solve any problem we might have cleanly and efficiently, without involving the government or any kind of central planning.

On the other hand, despite this rhetoric it seems pretty clear that they don't really believe in bottom-up solutions to anything when it comes to the economy. No matter the economic situation, whether boom or bust, whether the government runs a surplus or a deficit, their prescription is always the same: more and more tax cuts for the wealthy, large corporations and financiers, less and less corporate and financial regulation. And the justification is always the same too: these are the people and entities who create jobs and drive the economy. Not the people at the bottom, not the working class or the hard-working middle class -- nope, true wealth is generated by the wealthy at the top. Especially the banksters.

Sadly, the Democratic party leadership has bought into this idea nearly as much as the Repubicans have. Matt Taibbi warned us long ago to keep in mind that Wall Street financiers provided the largest part of Obama's presidential campaign donations, and despite Wall Street's public wailing whenever Obama says something that hurts their delicate feelings, Wall Street has made out pretty well under Obama. After nearly crashing the global financial system the banksters received what amounted to a strings-free bailout, and profits are now higher than ever on Wall Street, as are salaries and bonuses -- all at the same time the rest of America is still suffering through the worst economy since the Great Depression. And it doesn't strike me that this is entirely the result of political payback for campaign contributions. I get the sense that Obama really has bought into the idea -- as has pretty much everybody in the leadership of both parties -- that it is the Titans of Wall Street who are the fundamental drivers of our economy.

I think this is exactly wrong. America's FIRE (finance, insurance and real estate) economy is now the largest sector of our national GDP, but that doesn't mean it produces any actual wealth. Money is shifted around and interest is paid on debt, but no actual goods or services get produced by the FIRE economy. Nor does it employ a lot of people. Back when GM was the largest company in America that meant a lot of actual people were employed, both because automobile manufacturing was a (relatively) labor-intensive industry -- someone had to work the assembly lines -- and because all the suppliers to GM were also labor-intensive. But you don't need a 40,000 member workforce to shift money between electronic accounts. So while the vast amount of money that GM generated back in the 50's and 60's necessarily was spread out among many employees, all of whom then spent it themselves and thereby kept tons of other people employed, we don't have that with the FIRE economy. Now vast amounts of money are concentrated in the hands of relatively few people.

But the real wealth of any society resides in its natural resources and the goods and services that society can produce; while this wealth may end up concentrated in a few hands at the top level of society, actual wealth always -- always -- is created from the bottom up.

Whenever I think about this subject I am always reminded of feudal Japan. The Samurai class may have had all the wealth and the power in that society, but it didn't generate that wealth. The wealth was generated by the rice farmers at the bottom of society -- a circumstance recognized in Japan by the fact that up until the mid-19th century taxes were paid, not in money, but in actual bushels of rice. That -- the basic ability to feed its people -- was recognized as the nation's real wealth.

But I watch the fiscal and monetary decisions being made by our government today, and I don't get the feeling that anyone in charge really believes any longer that it is the great mass of people, toiling day in and day out, that actually created the wealth our society now has.

When the Fed is less concerned about doing something to bring down unemployment than it is about making sure inflation doesn't hurt the creditor class, when Republicans insist on shifting taxes away from the already wealthy because "they create the jobs" (a patent lie), when the salvation of the bond market is obviously more important to both parties than is our educational system, our infrastructure, our health care or -- as near as I can tell -- pretty much anything at all . . . .

Well, I get the sense that the people we put in charge really think that their job consists in making sure that the other elites in our society are basically free to do what they please because they are the only ones who "really matter." The rest of us -- the non-wealthy -- seem to be regarded more or less as livestock that can be herded, occasionally put to use (when the "real people" need consumers, debtors, or cannon fodder) but can also generally be safely ignored. The reasoning seems to be that if the richest of us are taken care of, then the rest of us will somehow naturally be taken care too.

How do they think that works? I dunno, but they seem to believe it. Maybe they think it's magic, or just a natural law of some sort. In any event, it is the epitome of a top-down approach to the economy and it seems to have infected everyone with a grip on any of the levers of power in this country.

UPDATE: In his column today Krugman hits on many of the same points I made here, albeit in a more erudite and slightly less despairing way. Representative quote: "Consciously or not, policy makers are catering almost exclusively to the interests of rentiers -- those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone's expense." But do click over and read the rest of what he has to say about how policy makers are protecting the creditor class by, i.e. choosing to curb (nonexistent) inflation over doing something to end unemployment, etc.

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