Debt hysteria is undoubtedly the most disgusting, lie-infested scam since George W. Bush launched his propaganda blitz leading up to the unprovoked invasion of Iraq. Like the Bush offensive, the debt scam has drawn public attention away from the critical issues facing the world - especially working people - at this critical moment. Unlike the Bush-era deceptions, debt hysteria has thoroughly infected policy throughout the world.
It is a supreme irony that the debt fears now provoked by government deficits are construed as excessive, while the decades of growth of personal debt and speculative debt in the private sector were seen as benign. Where all government debt grew roughly 8.5 times from 1978 to 2008, US mortgage debt grew 11.5 times, non-financial business debt grew by over 10 times, and debt in the financial sector by nearly 50 times! (Estimates from Epic Recession: Prelude to Global Depression, Jack Rasmus, p. 33) Yet few alarms were triggered as these vast sums of debt served to sustain and grow the profit margins of monopoly corporations. As long as the debt energized profit taking, the level of indebtedness was of no consequence. All of this changed – or should have changed – after the mountains of debt accumulated in the financial sector collapsed, bringing the global economy to its knees two years ago.
It is equally ironic that a quasi-governmental body – the Federal Reserve – pumped, with no transparency, $9 trillion in loans into the private sector to rescue corporations from the consequences of their collapsing debt load, as recent revelations have shown. We now know that the private sector, primarily the financial industry, hung by a slender thread thanks to years of promiscuous borrowing to fuel scandalously risky speculation.
Despite this indictment of private sector abuse of debt, policy makers have offered few guarantees that private sector debt will not again paralyze the global economy. Nor is there any hysterical concern over private debt with the opinion makers who protest so loudly over public sector debt.
US Debt: A Dose of Terrorism
With the federal deficit reaching $1.5 trillion in 2010, it is understandable that some would react to the figure with alarm. It is formidable figure, but what does it mean?
Actually, it means very little. There have been Federal budgets that have shown more percentage growth of the deficit or more growth against other measures such as GDP. Some of these budgets have correlated with good times, some with bad times. There is no strict relationship between budgetary frugality or generosity and prosperity.
Some deficits have resulted from reduced tax revenues, some from leaps in government spending. Interestingly, some of the biggest recent boosts in government spending – the great sin of debt scolds – have occurred under the Presidential stewardship of professed archenemies of deficits (Reagan, Bush I, Bush II).
Without exploring the details of government spending, there is no factual basis for alarm with the absolute or relative size of a Federal deficit. In the case of the current deficit, there are good reasons to examine why the US deficit is growing. As Jeff Madrick points out (NY Review of Books, 12-23-10), “…almost all of the projected deficit through 2020 will be the result of three factors: the recession, the tax cuts of the early 2000s under George W. Bush, and the hundreds of billions of dollars of war spending.” I would add that the continued growth of the costs of private medical services passed on to the public sector also adds substantially to these projections. All are social evils worthy of attacking, but not because they add to the deficit.
Other liberal economists, like Dean Baker and James K. Galbraith, have demonstrated loudly and conclusively why there are no theoretical reasons to fear an expanding Federal deficit or higher levels of public debt (apart from state and municipal budgets that are limited statutorily to balancing revenues and expenditures). They vigorously dispute the inappropriate parallel with family budgets and the catastrophic consequences of individuals spending more than they make. The Federal government does not endure the pain of the profligate neighbor who runs the credit card to the limit. Instead, the Federal government can borrow extensively through the sales of Treasury securities, particularly at a time when interest rates are at an historic low. Moreover, the Federal Reserve’s QE2 program is currently attempting to drive those interest rates down further through $600 billion in Treasury purchases, but with a different goal in mind.
Sane people will find no plausible explanation for the intensifying debt scare in the US, beyond political manipulation. And crude political manipulation it is: a ruse akin to the hysteria generated by the “war on terrorism.” With fear piled upon fear, politicians and policy makers are exploiting the ensuing panic to vigorously attack both the already inadequate safety net and working class living standards.
Political elites and their minions have taken to heart the slogan “every crisis presents an opportunity” by turning it on its head through a campaign of disinformation and fear mongering. Instead of taking up the cause of the twenty-five million unemployed and underemployed, they have seized the moment to impose even greater hardships on the vast majority of US citizens.
It took very little to rouse President Obama and his Administration to join the baying dogs of debt hysteria. With the creation of the Bowles-Simpson Debt Commission, he embraced the hypocrisy of debt terrorism. And his recent freezing of the wages and salaries of Federal workers justified by deficit concerns only underlines both his dishonesty and his callousness. His sharp right turn from his already right leanings should chasten those still star-struck with “change that you can believe in…” And those who still posture Obama as a progressive champion should be boiled in oil. His recent agreement to establish a NAFTA-clone trade pact with Korea has stirred great anger in the upper echelons of the AFL-CIO, the same labor leaders who hailed his pledge to revisit NAFTA and make it more labor-friendly.
The plain and simple truth is that the debt hysteria has no sound basis in economic theory or experience. Instead, it is a political ploy to raise fears to justify imposing austerity on workers, youth, minorities and the elderly. Its quick and ready acceptance by opinion makers demonstrates a callous dishonesty.
European Debt: Plundering the Weak
The European debt fears that have brought panic to the EU leaders and a wave of austere budget cuts has a real villain, but it’s not the profligate spending and big deficits that the media shrilly reports. Instead, it is hedge fund managers and a motley crew of other powerful financial pirates – Barron’s magazine cleverly calls them “bond vigilantes” -who understand the dynamics of international debt markets and prey on the weakest players. The wondrous thing about the new financial instruments devised in the late-twentieth century is that they allow and invite as much or more money to be made betting on failure as betting on success. Moreover, the financial predators have the weight in the market to force panic and reap profit from the chaos they produce.
These vultures ply on the fact that the weaker economies in the European Union are caught in a deadly vise: they owe much of their debt to foreign banks and they have surrendered monetary powers by replacing their sovereign currencies with the euro. First, Greece came under fire beginning in the fall of 2009 with a massive campaign driving the cost of insuring debt and acquiring loans. Of course these pessimistic bets further stressed Greece’s ability to muster funds, leading to even further aggression on the part of vulture capitalism through even more pessimistic bets against Greece’s ability to repay debt. And thus the noose tightened around the Greek economy.
As a result, Greece was forced to surrender its sovereignty and economy to the leaders of the European Union and the International Monetary Fund. In return for loans and guarantees that dispersed the vultures, the EU and IMF dictated an austerity program that drastically lowered the standard of living of the Greek people. Only the most militant sector of the Greek working class – the Communist Party and PAME – offered any real alternative to this devastating aggression.
The debt vultures turned next to Ireland later in 2010: same process, same result. With the EU and IMF now effectively ruling Ireland, the already shrunken Irish public sector is further squeezed with a drastic cut in jobs and public services piled onto an existing unemployment rate of 14%.
With the Greek and Irish carcasses picked clean, the aggressors are turning to Portugal, another country carrying debt and hamstrung by the acceptance of the euro as its national currency. And Spain - perhaps even Italy – is vulnerable to future attack.
In an unusually candid admission, The Wall Street Journal wrote of this insidious process in late November (Traders’ Targets: Portugal and Spain). Author Cassell Bryan-Low concedes that “hedge-fund managers are cautiously setting their sights on potential problems in countries such as Portugal and Spain…[T]hey are expecting more bad news to come, predicting that borrowing costs elsewhere will become prohibitive, potentially forcing other countries to also seek a bailout or restructure their debt.” Bryan-Low notes that some traders are a bit gun-shy because “the notion of betting against Europe’s peripheral economies has… become an emotional topic amid debate whether such moves have contributed to those countries financial woes…” Some officials “have called for the banning of certain instruments, such as derivatives…” Several fund managers are cited who confirm “bearish bets” on Spanish debt, with one stating ominously, “I don’t think those issues are going to go away, which is why the euro is going to stay under pressure.” The carnage continues…
Vulture capitalism preys on countries outside of the euro-zone as well. As I have shown previously (IMF Debt Hypocrisy: Sticking it to the Hungarians http://zzs-blg.blogspot.com/2010/08/imf-debt-hypocrisy-sticking-it-to.html), the game is really not about reducing deficits or debt levels, but about imposing the will of international capital on vulnerable countries and hammering the conditions of life for working people. When the Hungarian government proposed raising taxes on banks to reduce the deficit, their international overseers became hysterical - threatening repercussions - despite the fact that Hungary would meet the targets set by the IMF. It was not defiance of debt-reduction goals that brought on censure, but the refusal to put the burden on the Hungarian people.
Since the article, the defiant Hungarian government has pledged to lower personal taxes and boost welfare spending while increasing taxes on banks, telecommunications, retail businesses and energy companies, to raise revenue by $2 billion. This defiance has brought on a severe downgrading of Hungary’s credit rating to near junk status by Moody’s credit rating service. The prime minister’s office bluntly, but accurately, characterized this move as a response to “measures that hurt the interests of international capital in the short term” as reported in the back pages of the WSJ (12-7-10). So there is another path to debt management, but one would never know it from the actions of the cowardly governments that rule in the rest of Europe. Instead, they surrender their national sovereignty with a whimper.
Today, the capitalist class leads with the debt card in its efforts to discipline and dominate the working class. The failure to understand this strategy disarms working people caught in the throes of a new offensive in the class struggle. Just as we exposed the hypocrisy of George W. Bush’s contrived invasion of Iraq, we must bring light on the hypocrisy and deceit of the debt scare.
Zoltan Zigedy
zoltanzigedy@gmail.com
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Thursday, December 16, 2010
Sunday, December 12, 2010
International Finance’s Raid and Occupation of Ireland
Ireland is a young country, established only 88 years ago after centuries of domination by its powerful neighbor the United Kingdom. After liberation, the country remained largely in the shadow of its former colonial master, serving as a source of cheap immigrant labor. Irish youth would leave their homeland, portrayed in popular lore as a quaint land of small villages and crude agricultural economies, for work in London or other UK cities. The more ambitious would venture to the US, where the earlier successes of millions of Irish immigrants elevated a few to the upper echelons of wealth and power.
But with the emergence of a new era of intense capitalist growth spurred by unfettered and ever-expanding markets, technological advances, and financial daring, Irish policy makers decided to join the race to success promised by this developmental model.
Enthusiastically, successive Irish governments followed the scriptures of neo-liberal dogma. Possessing an educated, but low-wage work force, they enticed transnational corporations to locate in Ireland by offering them an obscenely low corporate tax rate, the lowest in the euro-zone except for Bulgaria. Tax rates for the wealthy were lowered, including a constantly shrinking capital-gains tax.
Given domestic growth, the financial sector was encouraged to exploit the newly found prosperity with an orgy of lending and investment in housing, commercial real estate, and the new, exotic instruments common to the financial sector over the last thirty years.
As a result, Ireland and the Irish economy were heralded by opinion makers, politicians, and the gatekeepers of capitalism, the World Bank and the IMF. With a public relations flourish, they dubbed Ireland the “Celtic Tiger” of the world economy.
Today, the tiger is on its deathbed.
Slammed by the global economic downturn, Ireland now stands as an example of all that is rotten in the global economy, all that is misguided in the neo-liberal program, and all that is painful in an unfounded faith in capitalist social relations.
With the pace of economic activity decelerating rapidly in 2008, the Irish government recognized that declining tax revenues placed stress on its budget. Where some governments sought to use public funds to stimulate growth, Ireland began a process of government austerity that would please the financial world and hew to the most dogmatic of neo-liberal principles – the budget was substantially in balance at the end of 2007.
But overlooked by Irish officials, the banks were carrying enormous debt with little prospect of realization. As in the US, the Irish financial industry had supported an orgy of real estate development that could only prove of value if the “Tiger” kept its furious pace of growth. Foreign banks, principally in the UK, France and Belgium, added their capital to stoke the fires of speculation. When this growth collapsed, the prospect of recovering these loans also collapsed. In addition, Irish banks, like their US and Icelandic counterparts, engaged in a risky speculative game with the flashy, but risky financial instruments invented in recent years. The potential losses were staggering. The banks tried to hide their losses. Officials pretended they didn’t exist.
As late as May 2008, Irish regulators assured the public that the banks were “sound and robust.” But early the next year, the government injected around 7 billion euros of public funds into the banking industry. And for the next two years, the Irish government denied that the banks were collapsing while adding billions more of public funds to rescue them.
In the fall of 2010, the Irish finance minister called for a final, honest accounting of the costs to the public for the bankers’ folly. The figure – undoubtedly an underestimation – totaled 50 billion euros or roughly US$ 50,000 per household.
While it is true that the collapse of the Celtic road to prosperity is an indictment of the policy choice of free market “cowboy” capitalism - the zealous faith in the dogmas of neo-liberalism - there is more to this tragedy. Unspoken in accounts of the Irish developmental debacle is the role of international finance capital in exploiting the crisis and driving Ireland into the hands of the European Central Bank and the IMF with a painful loss of national sovereignty.
Over the last thirty years, the financial industry has constructed and employed new, sophisticated methods of garnering profit from betting on negative outcomes as well as success. Hedge funds, private-equity firms, as well as big banks gain as much or more from exploiting weakness and economic vulnerability as they once did from supporting strength and growth. Consequently, they pounce on wounded economies, driving up borrowing rates and risk assessments while betting on default. This financial attack creates a disastrous, unending escalation of the costs of financing and refinancing debt that chokes off a government’s ability to fund even its most critical functions.
We saw this process in Greece last fall and winter. And we saw it again in Ireland this summer and fall: since the summer of 2010 the spread between the yield necessary to sell Irish government bonds and the yield of stable German bonds has jumped four-fold. This is an instance of financial aggression, pure and simple, with the next target undoubtedly the economic sovereignty of Portugal.
Inevitably, a country under this withering attack from the financial sector must turn to others for debt relief. In the case of Ireland, the European Union and IMF are staving off the assault with an 85-billion euro loan. In return, the Irish people surrender their sovereignty and submit to a severe further dose of austerity: the minimum wage is to be slashed by 12.5%, welfare benefits will be cut, pensions reduced, health care denied, public workers’ jobs eliminated, and the costs of education increased. This comes on top of an existing 14% unemployment rate. Once again, Irish youth are leaving in droves.
Ireland and its economy are effectively under the stewardship of the European Union and the IMF.
It is common, especially on the Left, to blame the Irish tragedy on the foolish belief that markets and business-friendly policies will bring prosperity to a poor country competing in a world of rapacious corporations and more advanced economies. While this is true, it misses the important point that the predatory international financial sector looms over a country’s effort, ever ready to pick the bones should that country falter. There is capitalism and then there is vulture capitalism.
Zoltan Zigedy
zoltanzigedy@gmail.com
But with the emergence of a new era of intense capitalist growth spurred by unfettered and ever-expanding markets, technological advances, and financial daring, Irish policy makers decided to join the race to success promised by this developmental model.
Enthusiastically, successive Irish governments followed the scriptures of neo-liberal dogma. Possessing an educated, but low-wage work force, they enticed transnational corporations to locate in Ireland by offering them an obscenely low corporate tax rate, the lowest in the euro-zone except for Bulgaria. Tax rates for the wealthy were lowered, including a constantly shrinking capital-gains tax.
Given domestic growth, the financial sector was encouraged to exploit the newly found prosperity with an orgy of lending and investment in housing, commercial real estate, and the new, exotic instruments common to the financial sector over the last thirty years.
As a result, Ireland and the Irish economy were heralded by opinion makers, politicians, and the gatekeepers of capitalism, the World Bank and the IMF. With a public relations flourish, they dubbed Ireland the “Celtic Tiger” of the world economy.
Today, the tiger is on its deathbed.
Slammed by the global economic downturn, Ireland now stands as an example of all that is rotten in the global economy, all that is misguided in the neo-liberal program, and all that is painful in an unfounded faith in capitalist social relations.
With the pace of economic activity decelerating rapidly in 2008, the Irish government recognized that declining tax revenues placed stress on its budget. Where some governments sought to use public funds to stimulate growth, Ireland began a process of government austerity that would please the financial world and hew to the most dogmatic of neo-liberal principles – the budget was substantially in balance at the end of 2007.
But overlooked by Irish officials, the banks were carrying enormous debt with little prospect of realization. As in the US, the Irish financial industry had supported an orgy of real estate development that could only prove of value if the “Tiger” kept its furious pace of growth. Foreign banks, principally in the UK, France and Belgium, added their capital to stoke the fires of speculation. When this growth collapsed, the prospect of recovering these loans also collapsed. In addition, Irish banks, like their US and Icelandic counterparts, engaged in a risky speculative game with the flashy, but risky financial instruments invented in recent years. The potential losses were staggering. The banks tried to hide their losses. Officials pretended they didn’t exist.
As late as May 2008, Irish regulators assured the public that the banks were “sound and robust.” But early the next year, the government injected around 7 billion euros of public funds into the banking industry. And for the next two years, the Irish government denied that the banks were collapsing while adding billions more of public funds to rescue them.
In the fall of 2010, the Irish finance minister called for a final, honest accounting of the costs to the public for the bankers’ folly. The figure – undoubtedly an underestimation – totaled 50 billion euros or roughly US$ 50,000 per household.
While it is true that the collapse of the Celtic road to prosperity is an indictment of the policy choice of free market “cowboy” capitalism - the zealous faith in the dogmas of neo-liberalism - there is more to this tragedy. Unspoken in accounts of the Irish developmental debacle is the role of international finance capital in exploiting the crisis and driving Ireland into the hands of the European Central Bank and the IMF with a painful loss of national sovereignty.
Over the last thirty years, the financial industry has constructed and employed new, sophisticated methods of garnering profit from betting on negative outcomes as well as success. Hedge funds, private-equity firms, as well as big banks gain as much or more from exploiting weakness and economic vulnerability as they once did from supporting strength and growth. Consequently, they pounce on wounded economies, driving up borrowing rates and risk assessments while betting on default. This financial attack creates a disastrous, unending escalation of the costs of financing and refinancing debt that chokes off a government’s ability to fund even its most critical functions.
We saw this process in Greece last fall and winter. And we saw it again in Ireland this summer and fall: since the summer of 2010 the spread between the yield necessary to sell Irish government bonds and the yield of stable German bonds has jumped four-fold. This is an instance of financial aggression, pure and simple, with the next target undoubtedly the economic sovereignty of Portugal.
Inevitably, a country under this withering attack from the financial sector must turn to others for debt relief. In the case of Ireland, the European Union and IMF are staving off the assault with an 85-billion euro loan. In return, the Irish people surrender their sovereignty and submit to a severe further dose of austerity: the minimum wage is to be slashed by 12.5%, welfare benefits will be cut, pensions reduced, health care denied, public workers’ jobs eliminated, and the costs of education increased. This comes on top of an existing 14% unemployment rate. Once again, Irish youth are leaving in droves.
Ireland and its economy are effectively under the stewardship of the European Union and the IMF.
It is common, especially on the Left, to blame the Irish tragedy on the foolish belief that markets and business-friendly policies will bring prosperity to a poor country competing in a world of rapacious corporations and more advanced economies. While this is true, it misses the important point that the predatory international financial sector looms over a country’s effort, ever ready to pick the bones should that country falter. There is capitalism and then there is vulture capitalism.
Zoltan Zigedy
zoltanzigedy@gmail.com
Wednesday, November 24, 2010
MARKET-BASED SOLUTIONS: ZZ TACKLES THE DEFICIT
As the number of Debt Commissions multiplies and media gasbags generate hurricane-like forces and hysterical fears of government insolvency, I’ve decided to surrender to the madness and propose a fresh, creative approach to debt reduction. My approach has the added value of requiring no budget cuts or tax increases. Instead, the solution will be found in cutting waste and acquiring new revenue sources hitherto unexplored.
And all of these revenues are generated by tapping the hidden potentials of the market place, a solution that will endear this plan to the vast majority of free-market economists and policy jockeys.
In its essence, my program exploits the vast assets currently wasted in our two-party political system. Instead of holding costly primary elections, I propose that we auction off the candidacies for the two parties with all proceeds going to the Federal budget. And instead of holding costly electoral campaigns, we adopt a system based upon cash votes: one vote for every dollar spent. The nine months currently devoted to canned speeches, staged rallies and meaningless debates could serve as an ongoing telethon with the dollars (votes) pouring in with a huge surge near the end. Again, all proceeds would go to the Federal budget. The beauty of this scheme is that the process is totally transparent and the results very likely close to the ones we usually get with the current electoral system.
But there is more: We could sell the naming rights to all of the House and Senate seats. The 18th Congressional District of state X might become the Halliburton or Goldman Sachs seat. The Delaware Senate seats could be sold to Dupont and the credit card industry. The possibilities are endless.
Likewise, the naming rights to departments, public buildings, airports, parks and roads might well generate millions to the Federal government. Admittedly, this might result in some awkward moments – the Richard Nixon Justice Department, the Strom Thurman Equal Rights Commission, etc. – but a small cost for market efficiency!
Instead of all the lobbying money currently wasted on campaign coffers and personal graft, we might consider installing turnstiles in government offices and agencies, charging lobbyists by the hour or earmark.
We might also consider marketizing the judiciary by selling judgeships and auctioning decisions. Undoubtedly, the legal profession would object since there would be little need for private attorneys, but the resultant revenues could go directly to the Federal budget, thus aiding widows and orphans.
The market-based solutions to the widely acclaimed deficit crisis are limited only by our imagination. Instead of slowly choking public education with privatization schemes (charter schools), why not simply construct a government fee schedule that allows youth to buy their way into a future career or profession? Of course, their fees would be refunded if they failed to meet the standards minimally necessary for performance in their fields. Doctors who consistently harm their patients would be asked to purchase a new profession more consistent with public welfare. Surely this would meet the requirements of market rationality.
For those without the funds to bid on prestigious professions, a government lottery could sort out those relegated to low-paying service jobs, those destined for prison, and those unhappily cast out as redundant. As always, the proceeds of this process would go to ease the deficit.
The beauty of this debt-reduction scheme lies in its total transparency. There are no hidden agendas, secret meetings, under-the-table deals; all transactions are in the open. While it produces virtually the same results that current practices deliver, it dispenses with the hypocrisy that infects the present political system. Moreover, the funds currently absorbed by our parasitic class of consultants, political staffers, office holders, campaign professionals, media moguls, etc. are shifted to debt reduction. It is no exaggeration that this market-based approach could produce billions of revenue to bolster the Federal budget.
Some may object, citing the absence of democracy in this approach. But this is a petty complaint, given that the results would most likely be the same as our current way of doing things. Social scientists call this an isomorphism: The processes may appear different, but operate the same and produce the same outcomes. Less kindly, Marxists call our current political system “bourgeois democracy,” a political doctrine that postures as democratic while functioning to produce and reproduce rule by wealth and power.
Undoubtedly, those who persist in defending the current two-party system will be outraged, condemning this proposal as cruelly cynical. Indeed it is. But the option is to reject the vulgar entertainment we accept as democracy and fight for a third peoples’ party or a new democracy. Anything less is rotten with hypocrisy.
Zoltan Zigedy
zoltanzigedy@gmail.com
And all of these revenues are generated by tapping the hidden potentials of the market place, a solution that will endear this plan to the vast majority of free-market economists and policy jockeys.
In its essence, my program exploits the vast assets currently wasted in our two-party political system. Instead of holding costly primary elections, I propose that we auction off the candidacies for the two parties with all proceeds going to the Federal budget. And instead of holding costly electoral campaigns, we adopt a system based upon cash votes: one vote for every dollar spent. The nine months currently devoted to canned speeches, staged rallies and meaningless debates could serve as an ongoing telethon with the dollars (votes) pouring in with a huge surge near the end. Again, all proceeds would go to the Federal budget. The beauty of this scheme is that the process is totally transparent and the results very likely close to the ones we usually get with the current electoral system.
But there is more: We could sell the naming rights to all of the House and Senate seats. The 18th Congressional District of state X might become the Halliburton or Goldman Sachs seat. The Delaware Senate seats could be sold to Dupont and the credit card industry. The possibilities are endless.
Likewise, the naming rights to departments, public buildings, airports, parks and roads might well generate millions to the Federal government. Admittedly, this might result in some awkward moments – the Richard Nixon Justice Department, the Strom Thurman Equal Rights Commission, etc. – but a small cost for market efficiency!
Instead of all the lobbying money currently wasted on campaign coffers and personal graft, we might consider installing turnstiles in government offices and agencies, charging lobbyists by the hour or earmark.
We might also consider marketizing the judiciary by selling judgeships and auctioning decisions. Undoubtedly, the legal profession would object since there would be little need for private attorneys, but the resultant revenues could go directly to the Federal budget, thus aiding widows and orphans.
The market-based solutions to the widely acclaimed deficit crisis are limited only by our imagination. Instead of slowly choking public education with privatization schemes (charter schools), why not simply construct a government fee schedule that allows youth to buy their way into a future career or profession? Of course, their fees would be refunded if they failed to meet the standards minimally necessary for performance in their fields. Doctors who consistently harm their patients would be asked to purchase a new profession more consistent with public welfare. Surely this would meet the requirements of market rationality.
For those without the funds to bid on prestigious professions, a government lottery could sort out those relegated to low-paying service jobs, those destined for prison, and those unhappily cast out as redundant. As always, the proceeds of this process would go to ease the deficit.
The beauty of this debt-reduction scheme lies in its total transparency. There are no hidden agendas, secret meetings, under-the-table deals; all transactions are in the open. While it produces virtually the same results that current practices deliver, it dispenses with the hypocrisy that infects the present political system. Moreover, the funds currently absorbed by our parasitic class of consultants, political staffers, office holders, campaign professionals, media moguls, etc. are shifted to debt reduction. It is no exaggeration that this market-based approach could produce billions of revenue to bolster the Federal budget.
Some may object, citing the absence of democracy in this approach. But this is a petty complaint, given that the results would most likely be the same as our current way of doing things. Social scientists call this an isomorphism: The processes may appear different, but operate the same and produce the same outcomes. Less kindly, Marxists call our current political system “bourgeois democracy,” a political doctrine that postures as democratic while functioning to produce and reproduce rule by wealth and power.
Undoubtedly, those who persist in defending the current two-party system will be outraged, condemning this proposal as cruelly cynical. Indeed it is. But the option is to reject the vulgar entertainment we accept as democracy and fight for a third peoples’ party or a new democracy. Anything less is rotten with hypocrisy.
Zoltan Zigedy
zoltanzigedy@gmail.com
Tuesday, November 9, 2010
Election Results: Telling the Forest from the Trees
I have slogged through uncountable commentaries on the mid-term elections. Many have offered useful insights on an event that will no doubt shape the political direction of the next two years. Yet, there is little to surprise in the outcome for anyone following recent and long-term developments in the US political system.
Two years ago, I projected that the Obama presidency would likely follow the pattern of the Carter presidency. Both came after a deep crisis of legitimacy: in one case, the Nixon debacle, in the other, the disastrous Bush presidency. The candidates postured as outsiders and in both cases they made impassioned pleas for change with a vague commitment to a “progressive” agenda. But in the end, the two administrations proved to be shaped by and acquiescent to a ruling-class agenda. The election of both candidates energized, protected and promoted a two-party system in need of credibility.
In another contemporaneous post, I drew upon the venerated I. F. Stone, who, groping for understanding of his disappointment with the Kennedy tenure, wrote of the enormous institutional forces that blocked any deviancy from the ruling-class agenda in the unlikely event that any President should truly want to stray.
In all three cases, performance fell far short of public expectations. In all three cases, the left mistook cosmetic adjustment for real change.
With the exception of a brief interlude of New Deal vigor during Lyndon Johnson’s presidency, spawned by a martyred Democratic president, an overwhelming defeat of the Goldwater extreme right and the pressures of a militant Civil Rights Movement, this has been the pattern of Democratic presidencies for the last fifty years.
While many know this history, few see it as a pattern. Since the marginalization of the Marxist left, few find or even look for meaningful connections and continuities linking political events. Instead, the media and establishment punditry portray the US electoral process as a regular contest, fought around carefully crafted personalities, shifting demographics, debate performance and the poll results of the moment disconnected from class and process. They neither look for nor find the deeper structural forces that determine how the game is played and who wins.
A deeper look exposes the internal logic of a two-party electoral system in a class-divided society. Without a radical challenge, such a system inevitably produces rule by wealth and power over the popular will. As money and wealth determine both the candidates and the outcomes, the political leaders become more and more distant from the people, something the Tea Party movement knows and exploits effectively.
Further, the issues raised in electoral campaigns function to establish a space between the candidates, necessary to legitimize the elections in the eyes of voters. But once elected, the differences between candidates prove illusive. Thus, we find more and more commentators referring to the Bush/Obama continuum. On war, immigration, civil liberties, etc, we are all too familiar with the shortcomings of the Democratic Administration and its legislative allies. But the Republicans demonstrate the same cynicism toward their promises: both Reagan and G.W. Bush ran as deficit hawks, but oversaw some of the largest government spending splurges in history, all in the interest of the military-industrial sector of monopoly capital. This cynical manipulation of the electoral process is neither an historical accident, nor an aberration of an otherwise democratic procedure, but a logical development of a two-party system in an increasingly class-divided society.
Some will find this overly deterministic, suggestive of a fatalistic course to US politics. Still others will find this dismally pessimistic. It is neither. It is, instead, a realistic assessment of where our neglect of the structural limitations of the US two-party system has taken us. Any response to the power of money, the corruption, and the cynicism of today must address these structural impediments. It is not enough to live in a fantasy world of marginal reform, incremental change, or slavish faith in a corporate-sponsored party.
Just as careful study reveals the rigid logic of the two-party system, a long look at periods of progressive change expose the genuine alternatives to a system that trivializes public engagement and guarantees results friendly to the wealthy and powerful. All important reversals of the two-party trajectory came with the building of mass movements driven by peoples’ causes – the plight of the rural poor, the exploitation of industrial workers, against imperialist wars, for civil rights for minorities, equality for women, etc. Insofar as these movements maintained a distance from the two parties, along with a dogged commitment sustained regardless of the party in power, they were able to leave an indelible mark on the political landscape. Insofar as they hitched their movement to the Democratic Party or Republican Party, they were quickly absorbed into the electoral campaign machinery, with their cause tacked on to the end of a long list of Party priorities. Again, these are historical constants that must be addressed going forward if we are not to continue down the same ineffective, well-worn path.
Recognizing that in the US today we are accustomed to preferring score cards to theory, I suggest we consider the voting patterns in the mid-term elections. Exit polls show that the groups most supportive of the Democrats in the election were: African-Americans, Hispanics, youth, union households, and urban dwellers. Yet they were the groups that benefited least from two years of a Democratic Executive and Congress. These are the same groups that demonstrated the most enthusiasm for change and have suffered the most from a profound economic crisis. They have witnessed and will pay for the enthusiastic rescue of Wall Street and the corporate sector, while their own interests have been neglected or trampled.
Until we come to grips with this glaring contradiction, we will continue to repeat the same mistakes with the same disappointing results.
Zoltan Zigedy
zoltanzigedy@gmail.com
Two years ago, I projected that the Obama presidency would likely follow the pattern of the Carter presidency. Both came after a deep crisis of legitimacy: in one case, the Nixon debacle, in the other, the disastrous Bush presidency. The candidates postured as outsiders and in both cases they made impassioned pleas for change with a vague commitment to a “progressive” agenda. But in the end, the two administrations proved to be shaped by and acquiescent to a ruling-class agenda. The election of both candidates energized, protected and promoted a two-party system in need of credibility.
In another contemporaneous post, I drew upon the venerated I. F. Stone, who, groping for understanding of his disappointment with the Kennedy tenure, wrote of the enormous institutional forces that blocked any deviancy from the ruling-class agenda in the unlikely event that any President should truly want to stray.
In all three cases, performance fell far short of public expectations. In all three cases, the left mistook cosmetic adjustment for real change.
With the exception of a brief interlude of New Deal vigor during Lyndon Johnson’s presidency, spawned by a martyred Democratic president, an overwhelming defeat of the Goldwater extreme right and the pressures of a militant Civil Rights Movement, this has been the pattern of Democratic presidencies for the last fifty years.
While many know this history, few see it as a pattern. Since the marginalization of the Marxist left, few find or even look for meaningful connections and continuities linking political events. Instead, the media and establishment punditry portray the US electoral process as a regular contest, fought around carefully crafted personalities, shifting demographics, debate performance and the poll results of the moment disconnected from class and process. They neither look for nor find the deeper structural forces that determine how the game is played and who wins.
A deeper look exposes the internal logic of a two-party electoral system in a class-divided society. Without a radical challenge, such a system inevitably produces rule by wealth and power over the popular will. As money and wealth determine both the candidates and the outcomes, the political leaders become more and more distant from the people, something the Tea Party movement knows and exploits effectively.
Further, the issues raised in electoral campaigns function to establish a space between the candidates, necessary to legitimize the elections in the eyes of voters. But once elected, the differences between candidates prove illusive. Thus, we find more and more commentators referring to the Bush/Obama continuum. On war, immigration, civil liberties, etc, we are all too familiar with the shortcomings of the Democratic Administration and its legislative allies. But the Republicans demonstrate the same cynicism toward their promises: both Reagan and G.W. Bush ran as deficit hawks, but oversaw some of the largest government spending splurges in history, all in the interest of the military-industrial sector of monopoly capital. This cynical manipulation of the electoral process is neither an historical accident, nor an aberration of an otherwise democratic procedure, but a logical development of a two-party system in an increasingly class-divided society.
Some will find this overly deterministic, suggestive of a fatalistic course to US politics. Still others will find this dismally pessimistic. It is neither. It is, instead, a realistic assessment of where our neglect of the structural limitations of the US two-party system has taken us. Any response to the power of money, the corruption, and the cynicism of today must address these structural impediments. It is not enough to live in a fantasy world of marginal reform, incremental change, or slavish faith in a corporate-sponsored party.
Just as careful study reveals the rigid logic of the two-party system, a long look at periods of progressive change expose the genuine alternatives to a system that trivializes public engagement and guarantees results friendly to the wealthy and powerful. All important reversals of the two-party trajectory came with the building of mass movements driven by peoples’ causes – the plight of the rural poor, the exploitation of industrial workers, against imperialist wars, for civil rights for minorities, equality for women, etc. Insofar as these movements maintained a distance from the two parties, along with a dogged commitment sustained regardless of the party in power, they were able to leave an indelible mark on the political landscape. Insofar as they hitched their movement to the Democratic Party or Republican Party, they were quickly absorbed into the electoral campaign machinery, with their cause tacked on to the end of a long list of Party priorities. Again, these are historical constants that must be addressed going forward if we are not to continue down the same ineffective, well-worn path.
Recognizing that in the US today we are accustomed to preferring score cards to theory, I suggest we consider the voting patterns in the mid-term elections. Exit polls show that the groups most supportive of the Democrats in the election were: African-Americans, Hispanics, youth, union households, and urban dwellers. Yet they were the groups that benefited least from two years of a Democratic Executive and Congress. These are the same groups that demonstrated the most enthusiasm for change and have suffered the most from a profound economic crisis. They have witnessed and will pay for the enthusiastic rescue of Wall Street and the corporate sector, while their own interests have been neglected or trampled.
Until we come to grips with this glaring contradiction, we will continue to repeat the same mistakes with the same disappointing results.
Zoltan Zigedy
zoltanzigedy@gmail.com
Thursday, November 4, 2010
Micro-lending Falls on Hard Times
Do I have a grudge against the Nobel Prize committees? A few weeks ago I launched a broadside against the awarding of prizes to three - no doubt well meaning and diligent - academic economists whose work on unemployment was postured as earthshaking contributions to resolving the current crisis. At the same time, I took a pot shot at last year’s Nobel Peace Prize going to the serving US President, an award that likely caused him some embarrassment after his dramatic escalation of the war in Afghanistan. And I couldn’t help noticing that my colleagues at Marxism-Leninism Today posted an article by Stephen Gowans that loosed his acerbic, sharp pen to blast this year’s Nobel Peace award granted to Liu Xiaobo. Gowans’s considerable talents conclusively demonstrate the stealth political agenda behind the committee’s decision. One is staggered by an international award earned by the recipient’s singular achievement of soliciting and attracting a mere 10,000 on-line signatures on a petition that, in effect, calls for the overthrow of the Chinese government.
But let me be clear about this: my quarrel is not with the recipients, at least not in past polemics. Rather, it is with committees that posture as unbiased and speak with the conceit of service to mankind. Instead, it is more and more obvious that the awards serve the ends of Western elites and legitimize their view of the world.
Take, for example, the 2006 Peace prize awarded to Prof. Mohammed Yunus for his pioneering work on what came to be called “micro-lending”. No doubt micro-lending – the idea that tiny loans to impoverished people could or would raise people from poverty – might, in some cases, be effective. Undoubtedly a small loan to a budding entrepreneur could launch a new, successful career in one of the world’s many economically barren areas. Of course informal loans in these areas are already a fact of ordinary life. Some are generously granted by family or friends, some are extended by usurious loan sharks. In any case, while granting that some could be lifted out of poverty with a modest loan, a financial helping hand, only the witless or perhaps a capitalist sensing potential profit would pose micro-lending as a solution to world poverty. Generously, I doubt that even Yunus ever saw the practice as the solution to mass poverty.
Nonetheless, the media, a gaggle of liberals, and many pundits hailed micro-lending as a miraculous answer to grinding poverty. In a striking display of ostentatious compassion, celebrities tossed money at the micro-lenders, puffing with pride over their genuine sympathy for the downtrodden. As the word got around about micro-lending, a groundswell of enthusiasm and a basket of awards and prizes followed, culminating in the Nobel Prize. Even Bill Clinton, the Terminator of the US welfare program, hailed micro-lending as one of the truly great poverty-reducing instruments.
As the micro-lending mania flourished, I thought that this too would pass. Like so many faddish schemes of the past, I saw micro-lending as one more fashionable way to turn liberal eyes away from the true causes of poverty in the developing world. Instead of dealing with the legacy of colonialism and the continuing pillage of imperialism, micro-leading gives comfortable people in the West a guilt-cleanser, a measure of smug acknowledgement – like the once popular “CARE” packages – that poverty was being whipped. It is certainly less costly than repaying the teeming masses for centuries of exploitation, brutal domination, and neglect. And I was well aware of the argument that a mere $200 micro-loan could help a poor villager establish a bicycle shop. But I wondered how the other villagers could rise from poverty by also setting up bicycle shops.
But lurking in all the palaver over micro-loans was the interesting micro-fact: lenders generally charged between 25 to 100% annual interest. Now I don’t know what village loan sharks charge, but my imagination stretches to envision their pushing much beyond these bounds. Granted, their collection methods might be considerably more severe than the beneficent micro-lender. To my mind, the micro-lending mania produced the aura of the pay-day loan shops that prey upon the working poor in the US.
But the micro-lending phenomena proved to be more than a passing fad. Today in India, one of the largest “markets” for micro-loans, there are more than 25 million borrowers and loans total well over 200 billion rupees. Total loans have grown nearly six times in three years. Banks and private equity firms have plowed over $4 billion this year into what has become a significant industry. The largest micro-lending firm recently offered $350 million in shares on the Indian stock market, according to The Wall Street Journal (10-29-10). Capitalism has discovered micro-lending.
Whatever noble intentions may have spurred the micro-lending movement, it was quickly stripped of any such sentiments when the financiers discovered it. Like efforts in the US to encourage low-income home ownership, the financial predators saw only profit. And they leaped at it, pushing the limits as far as the last dollar (or rupee) of profits could be squeezed out. The parallel between this exploitation of the most vulnerable in India and our own tragic exploitation of the poor through sub-prime mortgages is glaringly apparent.
It took a rash of suicides by borrowers to bring these abuses to the attention of Indian government regulators. The headlines in The Wall Street Journal tell it all: India’s Major Crisis in Microlending: Loans Involving Tiny Amounts of Money Were a Good Idea, but the Explosion of Interest Backfires (10-29-10), Backlash in Microlending (10-30-10). All debt payments have been suspended by the authorities and loan agents have been arrested in the Indian state burdened with 30% of the country’s micro-loans, leading WSJ writers to conclude that “the microlending movement… has in recent weeks fallen into chaos.” Once again financial predations result in chaos and crisis, a pattern that only escapes those willfully blind or cornered by self-interest.
The naked truth is that lending, like insuring, is a socially useful function if and only if it is democratically administered and publicly sustained. There is no rational or moral justification for engaging private interests. A disinterested public administrator armed with default data, an available loan fund, and a reasonable sense of social priorities and judgment of character could dispense loans untainted by the distraction of profits. Profits only distort the rationality or efficiency of this necessary social function.
The same could be said of insurance. Armed with actuarial tables (usually assembled from data collected from government agencies), a schedule of costs and benefits can be constructed by a competent statistician. It is an easy step to fairly and equitably distributing these costs and benefits in the most efficient and democratic way. Again there is no justification for introducing private gain into this process. It’s only an invitation to chaos and crisis.
It’s time to drive the money lenders from the temple.
Zoltan Zigedy
zoltanzigedy@gmail.com
But let me be clear about this: my quarrel is not with the recipients, at least not in past polemics. Rather, it is with committees that posture as unbiased and speak with the conceit of service to mankind. Instead, it is more and more obvious that the awards serve the ends of Western elites and legitimize their view of the world.
Take, for example, the 2006 Peace prize awarded to Prof. Mohammed Yunus for his pioneering work on what came to be called “micro-lending”. No doubt micro-lending – the idea that tiny loans to impoverished people could or would raise people from poverty – might, in some cases, be effective. Undoubtedly a small loan to a budding entrepreneur could launch a new, successful career in one of the world’s many economically barren areas. Of course informal loans in these areas are already a fact of ordinary life. Some are generously granted by family or friends, some are extended by usurious loan sharks. In any case, while granting that some could be lifted out of poverty with a modest loan, a financial helping hand, only the witless or perhaps a capitalist sensing potential profit would pose micro-lending as a solution to world poverty. Generously, I doubt that even Yunus ever saw the practice as the solution to mass poverty.
Nonetheless, the media, a gaggle of liberals, and many pundits hailed micro-lending as a miraculous answer to grinding poverty. In a striking display of ostentatious compassion, celebrities tossed money at the micro-lenders, puffing with pride over their genuine sympathy for the downtrodden. As the word got around about micro-lending, a groundswell of enthusiasm and a basket of awards and prizes followed, culminating in the Nobel Prize. Even Bill Clinton, the Terminator of the US welfare program, hailed micro-lending as one of the truly great poverty-reducing instruments.
As the micro-lending mania flourished, I thought that this too would pass. Like so many faddish schemes of the past, I saw micro-lending as one more fashionable way to turn liberal eyes away from the true causes of poverty in the developing world. Instead of dealing with the legacy of colonialism and the continuing pillage of imperialism, micro-leading gives comfortable people in the West a guilt-cleanser, a measure of smug acknowledgement – like the once popular “CARE” packages – that poverty was being whipped. It is certainly less costly than repaying the teeming masses for centuries of exploitation, brutal domination, and neglect. And I was well aware of the argument that a mere $200 micro-loan could help a poor villager establish a bicycle shop. But I wondered how the other villagers could rise from poverty by also setting up bicycle shops.
But lurking in all the palaver over micro-loans was the interesting micro-fact: lenders generally charged between 25 to 100% annual interest. Now I don’t know what village loan sharks charge, but my imagination stretches to envision their pushing much beyond these bounds. Granted, their collection methods might be considerably more severe than the beneficent micro-lender. To my mind, the micro-lending mania produced the aura of the pay-day loan shops that prey upon the working poor in the US.
But the micro-lending phenomena proved to be more than a passing fad. Today in India, one of the largest “markets” for micro-loans, there are more than 25 million borrowers and loans total well over 200 billion rupees. Total loans have grown nearly six times in three years. Banks and private equity firms have plowed over $4 billion this year into what has become a significant industry. The largest micro-lending firm recently offered $350 million in shares on the Indian stock market, according to The Wall Street Journal (10-29-10). Capitalism has discovered micro-lending.
Whatever noble intentions may have spurred the micro-lending movement, it was quickly stripped of any such sentiments when the financiers discovered it. Like efforts in the US to encourage low-income home ownership, the financial predators saw only profit. And they leaped at it, pushing the limits as far as the last dollar (or rupee) of profits could be squeezed out. The parallel between this exploitation of the most vulnerable in India and our own tragic exploitation of the poor through sub-prime mortgages is glaringly apparent.
It took a rash of suicides by borrowers to bring these abuses to the attention of Indian government regulators. The headlines in The Wall Street Journal tell it all: India’s Major Crisis in Microlending: Loans Involving Tiny Amounts of Money Were a Good Idea, but the Explosion of Interest Backfires (10-29-10), Backlash in Microlending (10-30-10). All debt payments have been suspended by the authorities and loan agents have been arrested in the Indian state burdened with 30% of the country’s micro-loans, leading WSJ writers to conclude that “the microlending movement… has in recent weeks fallen into chaos.” Once again financial predations result in chaos and crisis, a pattern that only escapes those willfully blind or cornered by self-interest.
The naked truth is that lending, like insuring, is a socially useful function if and only if it is democratically administered and publicly sustained. There is no rational or moral justification for engaging private interests. A disinterested public administrator armed with default data, an available loan fund, and a reasonable sense of social priorities and judgment of character could dispense loans untainted by the distraction of profits. Profits only distort the rationality or efficiency of this necessary social function.
The same could be said of insurance. Armed with actuarial tables (usually assembled from data collected from government agencies), a schedule of costs and benefits can be constructed by a competent statistician. It is an easy step to fairly and equitably distributing these costs and benefits in the most efficient and democratic way. Again there is no justification for introducing private gain into this process. It’s only an invitation to chaos and crisis.
It’s time to drive the money lenders from the temple.
Zoltan Zigedy
zoltanzigedy@gmail.com
Sunday, October 31, 2010
Profits or Prosperity?
Data on US profits for the second quarter of this year are well worth studying, not only for what they say about the health of the corporate sector, but also for what they reveal about the structure of our economic system and the priorities of our policy makers.
Commerce Department figures show that after-tax profits rose 3.9% from the first quarter and a staggering 26.5% from the same quarter in 2009. This year-to-year percentage growth is the highest ever recorded by the Commerce Department without factoring for inflation. (The figure is even more impressive given that virtually none of the growth is due to inflation over the last year!)
Perhaps even more telling is the percentage of national income accounted for by profits. Well over 9% of national income in the second quarter of 2010 counted as profits, the 3rd highest portion since 1947. Interestingly, the percentage of national income was only marginally higher in two quarters of 2006 when the unemployment rate was 4.6% at the peak of the last economic expansion.
Analyzing the data, The Wall Street Journal (10-4-10) concluded that those corporations making up the Standard and Poor’s top 500 corporations – the core of monopoly capital – actually grew by 38%, returning $189 billion or 15.6% of all after-tax profit.
WSJ analysts underline the profit trends by noting that profits are up 10% over 2008 though revenues are down 6%. Monopoly corporations now make 8.4 cents on every dollar of revenue, when they made only 7 cents on every dollar in 2008.
The Winners’ Circle
For corporations, the numbers are spectacular. They indicate a complete recovery of the profit momentum lost in 2008 and 2009. Since the early 1980’s, after-tax profits - as a percentage of total national income - have marched upward and onward, indicating that more of the wealth created in the US has been distributed to the corporate sector. At the beginning of the 1980’s, less than 5% of national income found its way to corporations as profits. Today, that percentage appropriated by corporations, especially monopoly corporations, has increased to nearly 10%.
Several interrelated factors have contributed to this shift of wealth to corporations from the rest of us.
First, the rate of exploitation – the relation between the share of wealth appropriated by the ownership class and the share left to the workers - has increased dramatically. Labor’s bargaining power has diminished with the decline of both union density and militancy. Hourly wages in the US have been stagnant or declining throughout most of the last thirty years while productivity has increased consistently. The average hourly wage (adjusted for inflation) for production and non-supervisory employees has hardly budged since 1978. Indeed, nearly two-thirds of ALL workers average hourly wages have stagnated since 1978. At the same time, benefits have been cut, shifted or eliminated for most workers. Given the growth of the national income in this period, it follows that more of society’s wealth is available to the corporate sector, its managers, investors, and parasitic minions.
Secondly, the growing significance of financial instruments and the financial sector has prodded corporate profits to new heights. With the stagnation of mass purchasing power brought on by rapacious exploitation, the financial sector has established borrowed money as the vehicle for improved living standards for most US citizens, given that capitalists have the money and the rest of us do not. Consumer debt – mortgages, credit cards, student loans, home equity loans, etc. – has replaced wages as the means to a better life for the vast majority of those outside of the ownership class. Consequently, more and more of corporate profits were represented by deferred, projected, or even hypothetical wealth – the wealth that would be accumulated when all debt is eventually cleared. The financial sector went even further and through the creation of financial exotica (instruments derived from the real-world contracting of debt) claimed further profits from the buying and selling of these artificial creatures. Of course it was the collapse of this debt house-of-cards that brought the world economy to its knees in 2008 and 2009. And yet the share of total corporate profit attributable to the financial sector remains over 40% despite this destruction of deferred, projected, and hypothetical profit.
Thirdly, the actions of policymakers – lawmakers of both parties and their technocratic vassals – have aided and abetted the corporate drive for profits. By privatizing and commodifying many public assets, they have widened the arena of profit taking. By turning a blind eye to corporate migration to low-wage labor markets, they have pressured wages to the level of the lowest competitive nation. And through removing socially responsible restrictions on corporate activity, they have allowed corporations to escape the costs of compliance, even at enormous social costs born by the majority.
The creation of public-private partnerships by lawmakers and enthusiastic administrators has transferred enterprise risks to the public while subsidizing private profit taking. Likewise, tax policies have shifted to remove nearly all burdens from corporations. Conversely, policymakers have weakly submitted to an extortionate con game of credits and infrastructure subsidies to keep old businesses or attract new plants, warehouses, or other private investors. Local, state and regional authorities are caught in a vicious competitive spiral of ever more generous bids to retain or attain a business. The game ends when the last competitor falls exhausted. And often the winner lives to regret the enormous costs of success.
And, of course, the government has embarked on a massive and unprecedented bailout of financial institutions and other major industries over the last two years, a bailout that brought these corporations from their knees to new heights of profitability. Likewise, the widely heralded stimulus program channeled vast sums to private firms – unlike the public works programs of the New Deal – further propping up profits with little impact upon employment.
These three processes – intense exploitation of labor, the dominant role of the financial sector and the subservience of policy to the interests of capital – combine to explain the explosive growth of that share of US national income flowing to corporate coffers. They also explain the cracking of the foundations of our economy over the last few years.
Conjuring Consensus
The explosive growth of after-tax profits as a share of national income over the last three decades was hardly a secret; it was not a closely held conspiratorial plot; nor were the events and policies that enabled this development out of sight of the public. Nonetheless, the corporate onslaught met feeble resistance.
Thanks to a corporate-friendly media, a compliant punditry, and a public diverted by entertainments besting the most elaborate Roman circus, the profit gouging agenda became the widely accepted road to general prosperity.
Sure, the early Reaganite slogan of “trickle down” growth – the notion that the success of the wealthy would seep down into the lower classes – was met with significant skepticism, even derision. But by the time of the Clinton administration, this idea was deeply embedded in mass consciousness. Captured by the more colorful metaphor that “a rising tide lifts all boats,” the idea that the success of the most favored, the most advantaged, would bring a general rise of social good planted deep roots in the public psyche. For most US citizens, it became an obvious truth that corporate success - growth, increasing profits, and stock appreciation - led to employment and rising living standards. We might express this “truth” with the simple formula: corporate profits→growth→jobs→general welfare.
It was this thinking that bolstered the notion in the labor movement that workers should support “their” corporations – US-based corporations – against “foreign” corporations, despite the fact that the modern monopoly corporation knows no borders. Similarly, people came to believe that government should guarantee the health and profitability of their employers in order to secure and create jobs and, in due course, generate a rising standard of living for employees. In turn, if profitability is accepted as the sole, decisive factor in social progress, then employee concessions often become a necessary evil that smooths the road to further progress.
The triumph of the sovereignty of profits left little room for alternative thinking that might cast corporate profits in a different light. This identification of profits and general prosperity smothered considerations of public ownership and the operation of socially beneficial enterprises, redistributive policies, democratic governance of corporate activity, or even an open discussion of the biblical notion of a “fair profit.”
The Chain is Broken
Despite the brutal economic facts of the last decade, few have shown the vision or courage to admit that the key links between profits and prosperity have been shattered. Economists acknowledge that the upturn after the recession of 2001 was decidedly a “jobless recovery,” a recovery with little to offer the majority of working people other than more debt. Moreover, the profit recovery since the 2009 economic nadir has accompanied a stubborn, unmoving near-depression level of unemployment. The volcanic rise in profits (206% for the S&P 500 in the last quarter of 2009 against the same quarter in 2008) stands in sharp contrast to an equally dramatic change in the misery indices: declining incomes, greater inequality, rising poverty rates.
Even those deafened by the constant media babble or blinded by political flimflam should now see through the humbuggery of placing human advancement in the hands of profiteers. The old argument that corporate avarice, through the unbiased operation of the market, will benefit us all must surely be retired.
Economists concede that the next decade - called by some, a "lost decade" - promises, at best, a feeble recovery with likely persistent unemployment, greater impoverishment, a retreat of social securities, and ominous uncertainties for most outside of the ownership class. Thus, the first two decades of the twenty-first century will have featured a decided retreat from the prosperity promised by a profit-driven market economy. Many, if not most of the people will have experienced the better part of their adult life in the shadow of these tribulations. The hopeful notion that the next generation will do better is severely threatened, maybe shattered. Indeed, it is now apparent that few boats are lifted with a rising tide driven by profits.
The responsibility for exposing the failure of profit-centric economic policy falls squarely on the US left. While the US left is small and with a narrow circle of influence, it alone can begin to project and popularize an alternative economy that reduces or eliminates the decisive role of profits. It alone can offer a road apart from the path paved by corporate self-interest.
Some falsely counter pose organizing and agitating for a just, democratic alternative economy – to my mind, socialism – with political work on the margins of mainstream politics. For decades, this argument has surfaced time and again with every election cycle or legislative session. The struggle for socialism, the argument goes, is distant and difficult, while we – the left - might have an impact on the immediate issues and options at play in the two-party charade. This is, I believe, a dangerous brew of egomania and complacency. The reality is that the left has neither the bucks nor the bodies to shift the balance in the big show (nor is engagement welcome, except at the price of any left identity). And when left engagement does threaten to upset the political trajectory (for example, the Nader campaigns), these same “soft” left advocates roundly condemn the effort.
But in the end, it is possible to do both: one can, if one likes, participate energetically in the big game – primaries, legislative lobbies, etc. – with the hope of moving the ball incrementally forward. And one must fervently engage our foes on every level, whether it be in the neighborhood or around individual issues. At the same time, one can and must organize and agitate for an alternative to the profit-centric dogma. Without a determined effort to spark and fan the embers of extraordinary, fundamental change, we are doomed to see our future sink in the face of corporate power and greed.
Zoltan zigedy
zoltanzigedy@gmail.com
Commerce Department figures show that after-tax profits rose 3.9% from the first quarter and a staggering 26.5% from the same quarter in 2009. This year-to-year percentage growth is the highest ever recorded by the Commerce Department without factoring for inflation. (The figure is even more impressive given that virtually none of the growth is due to inflation over the last year!)
Perhaps even more telling is the percentage of national income accounted for by profits. Well over 9% of national income in the second quarter of 2010 counted as profits, the 3rd highest portion since 1947. Interestingly, the percentage of national income was only marginally higher in two quarters of 2006 when the unemployment rate was 4.6% at the peak of the last economic expansion.
Analyzing the data, The Wall Street Journal (10-4-10) concluded that those corporations making up the Standard and Poor’s top 500 corporations – the core of monopoly capital – actually grew by 38%, returning $189 billion or 15.6% of all after-tax profit.
WSJ analysts underline the profit trends by noting that profits are up 10% over 2008 though revenues are down 6%. Monopoly corporations now make 8.4 cents on every dollar of revenue, when they made only 7 cents on every dollar in 2008.
The Winners’ Circle
For corporations, the numbers are spectacular. They indicate a complete recovery of the profit momentum lost in 2008 and 2009. Since the early 1980’s, after-tax profits - as a percentage of total national income - have marched upward and onward, indicating that more of the wealth created in the US has been distributed to the corporate sector. At the beginning of the 1980’s, less than 5% of national income found its way to corporations as profits. Today, that percentage appropriated by corporations, especially monopoly corporations, has increased to nearly 10%.
Several interrelated factors have contributed to this shift of wealth to corporations from the rest of us.
First, the rate of exploitation – the relation between the share of wealth appropriated by the ownership class and the share left to the workers - has increased dramatically. Labor’s bargaining power has diminished with the decline of both union density and militancy. Hourly wages in the US have been stagnant or declining throughout most of the last thirty years while productivity has increased consistently. The average hourly wage (adjusted for inflation) for production and non-supervisory employees has hardly budged since 1978. Indeed, nearly two-thirds of ALL workers average hourly wages have stagnated since 1978. At the same time, benefits have been cut, shifted or eliminated for most workers. Given the growth of the national income in this period, it follows that more of society’s wealth is available to the corporate sector, its managers, investors, and parasitic minions.
Secondly, the growing significance of financial instruments and the financial sector has prodded corporate profits to new heights. With the stagnation of mass purchasing power brought on by rapacious exploitation, the financial sector has established borrowed money as the vehicle for improved living standards for most US citizens, given that capitalists have the money and the rest of us do not. Consumer debt – mortgages, credit cards, student loans, home equity loans, etc. – has replaced wages as the means to a better life for the vast majority of those outside of the ownership class. Consequently, more and more of corporate profits were represented by deferred, projected, or even hypothetical wealth – the wealth that would be accumulated when all debt is eventually cleared. The financial sector went even further and through the creation of financial exotica (instruments derived from the real-world contracting of debt) claimed further profits from the buying and selling of these artificial creatures. Of course it was the collapse of this debt house-of-cards that brought the world economy to its knees in 2008 and 2009. And yet the share of total corporate profit attributable to the financial sector remains over 40% despite this destruction of deferred, projected, and hypothetical profit.
Thirdly, the actions of policymakers – lawmakers of both parties and their technocratic vassals – have aided and abetted the corporate drive for profits. By privatizing and commodifying many public assets, they have widened the arena of profit taking. By turning a blind eye to corporate migration to low-wage labor markets, they have pressured wages to the level of the lowest competitive nation. And through removing socially responsible restrictions on corporate activity, they have allowed corporations to escape the costs of compliance, even at enormous social costs born by the majority.
The creation of public-private partnerships by lawmakers and enthusiastic administrators has transferred enterprise risks to the public while subsidizing private profit taking. Likewise, tax policies have shifted to remove nearly all burdens from corporations. Conversely, policymakers have weakly submitted to an extortionate con game of credits and infrastructure subsidies to keep old businesses or attract new plants, warehouses, or other private investors. Local, state and regional authorities are caught in a vicious competitive spiral of ever more generous bids to retain or attain a business. The game ends when the last competitor falls exhausted. And often the winner lives to regret the enormous costs of success.
And, of course, the government has embarked on a massive and unprecedented bailout of financial institutions and other major industries over the last two years, a bailout that brought these corporations from their knees to new heights of profitability. Likewise, the widely heralded stimulus program channeled vast sums to private firms – unlike the public works programs of the New Deal – further propping up profits with little impact upon employment.
These three processes – intense exploitation of labor, the dominant role of the financial sector and the subservience of policy to the interests of capital – combine to explain the explosive growth of that share of US national income flowing to corporate coffers. They also explain the cracking of the foundations of our economy over the last few years.
Conjuring Consensus
The explosive growth of after-tax profits as a share of national income over the last three decades was hardly a secret; it was not a closely held conspiratorial plot; nor were the events and policies that enabled this development out of sight of the public. Nonetheless, the corporate onslaught met feeble resistance.
Thanks to a corporate-friendly media, a compliant punditry, and a public diverted by entertainments besting the most elaborate Roman circus, the profit gouging agenda became the widely accepted road to general prosperity.
Sure, the early Reaganite slogan of “trickle down” growth – the notion that the success of the wealthy would seep down into the lower classes – was met with significant skepticism, even derision. But by the time of the Clinton administration, this idea was deeply embedded in mass consciousness. Captured by the more colorful metaphor that “a rising tide lifts all boats,” the idea that the success of the most favored, the most advantaged, would bring a general rise of social good planted deep roots in the public psyche. For most US citizens, it became an obvious truth that corporate success - growth, increasing profits, and stock appreciation - led to employment and rising living standards. We might express this “truth” with the simple formula: corporate profits→growth→jobs→general welfare.
It was this thinking that bolstered the notion in the labor movement that workers should support “their” corporations – US-based corporations – against “foreign” corporations, despite the fact that the modern monopoly corporation knows no borders. Similarly, people came to believe that government should guarantee the health and profitability of their employers in order to secure and create jobs and, in due course, generate a rising standard of living for employees. In turn, if profitability is accepted as the sole, decisive factor in social progress, then employee concessions often become a necessary evil that smooths the road to further progress.
The triumph of the sovereignty of profits left little room for alternative thinking that might cast corporate profits in a different light. This identification of profits and general prosperity smothered considerations of public ownership and the operation of socially beneficial enterprises, redistributive policies, democratic governance of corporate activity, or even an open discussion of the biblical notion of a “fair profit.”
The Chain is Broken
Despite the brutal economic facts of the last decade, few have shown the vision or courage to admit that the key links between profits and prosperity have been shattered. Economists acknowledge that the upturn after the recession of 2001 was decidedly a “jobless recovery,” a recovery with little to offer the majority of working people other than more debt. Moreover, the profit recovery since the 2009 economic nadir has accompanied a stubborn, unmoving near-depression level of unemployment. The volcanic rise in profits (206% for the S&P 500 in the last quarter of 2009 against the same quarter in 2008) stands in sharp contrast to an equally dramatic change in the misery indices: declining incomes, greater inequality, rising poverty rates.
Even those deafened by the constant media babble or blinded by political flimflam should now see through the humbuggery of placing human advancement in the hands of profiteers. The old argument that corporate avarice, through the unbiased operation of the market, will benefit us all must surely be retired.
Economists concede that the next decade - called by some, a "lost decade" - promises, at best, a feeble recovery with likely persistent unemployment, greater impoverishment, a retreat of social securities, and ominous uncertainties for most outside of the ownership class. Thus, the first two decades of the twenty-first century will have featured a decided retreat from the prosperity promised by a profit-driven market economy. Many, if not most of the people will have experienced the better part of their adult life in the shadow of these tribulations. The hopeful notion that the next generation will do better is severely threatened, maybe shattered. Indeed, it is now apparent that few boats are lifted with a rising tide driven by profits.
The responsibility for exposing the failure of profit-centric economic policy falls squarely on the US left. While the US left is small and with a narrow circle of influence, it alone can begin to project and popularize an alternative economy that reduces or eliminates the decisive role of profits. It alone can offer a road apart from the path paved by corporate self-interest.
Some falsely counter pose organizing and agitating for a just, democratic alternative economy – to my mind, socialism – with political work on the margins of mainstream politics. For decades, this argument has surfaced time and again with every election cycle or legislative session. The struggle for socialism, the argument goes, is distant and difficult, while we – the left - might have an impact on the immediate issues and options at play in the two-party charade. This is, I believe, a dangerous brew of egomania and complacency. The reality is that the left has neither the bucks nor the bodies to shift the balance in the big show (nor is engagement welcome, except at the price of any left identity). And when left engagement does threaten to upset the political trajectory (for example, the Nader campaigns), these same “soft” left advocates roundly condemn the effort.
But in the end, it is possible to do both: one can, if one likes, participate energetically in the big game – primaries, legislative lobbies, etc. – with the hope of moving the ball incrementally forward. And one must fervently engage our foes on every level, whether it be in the neighborhood or around individual issues. At the same time, one can and must organize and agitate for an alternative to the profit-centric dogma. Without a determined effort to spark and fan the embers of extraordinary, fundamental change, we are doomed to see our future sink in the face of corporate power and greed.
Zoltan zigedy
zoltanzigedy@gmail.com
Tuesday, October 19, 2010
A Prize or a Bad Joke?
Many see the Nobel Prize as the Super Bowl of intellectual life. But more and more, it appears to be like another championship belt in the World Wrestling Federation. Where awarding the “Peace” prize to the Commander-in-Chief of the world’s most war-mongering power tarnished the award, the recently awarded prize for economics brings the contest down to the level of American Idol.
“Economic science,” as its practitioners refer to it, has moved in two directions at once: further away from the reality of economic life and closer to self-sustained scholastic exercises understood and appreciated by the few who work in those same close quarters. Yet never does it travel too far from the ranch of apologia for the holy scriptures of capitalism.
Capitalist triumphalism – the view that all deep questions about the fundamentals of economic structures and activity have been settled – dominates and informs recent academic research in the field. If one suspects a parallel with the religiously driven dogmas of Ptolemaic cosmology, it is there to be found. The world of modern academic economists assumes, with no need to prove it, that economic activity is and can only be understood with the basic units of markets, individual actors and their sets of interests, acquisitive motives, and private ownership. This is the game and the only game. Outsiders – Marxists and renegades from economic scholasticism – are not allowed to play, since they fail to abide by the rules.
But sometimes reality intercedes with brute economic events that challenge this smugness. As the often-brilliant John Strachey wrote in 1935 during the midst of the Great Depression:
Today, we are in the throes of a similar crisis and economists are similarly fumbling for explanations and solutions.
In the spotlight of today’s crisis is the seeming intractability of extremely high unemployment, a problem even more embarrassing to capitalist apologists in light of record-setting profits.
Thus, many, even far outside of the academic world, expectantly turned with great interest to the announcement that three economists would share the $1.5 million Nobel Prize for purportedly insightful work on unemployment. Peter Diamond, Dale Mortensen, and Christopher Pissarides won the 2010 prize for their “groundbreaking ideas that help explain why unemployment remains stubbornly high in the US and other developing countries,” as hailed by The Wall Street Journal.
Sadly, any such expectations would be quickly shattered. The core problem addressed by the three scholars is not the unemployment of the moment, but the relatively high unemployment associated with the European economies of the 1980s and 1990s. At that time, France, Germany and other advanced economies enjoyed strong growth, rising living standards, viable social welfare benefits, but relatively high unemployment – high relative to the theoretical fundamentals of economic dogma. Conventional thinking dictated that growth and rising standards should motivate Europe’s unemployed to seek the available jobs, but instead many chose to obstinately accept the benefits of the social welfare system while settling for a measure of leisure in an abundant society. Essentially, they were redundant, but without courting starvation, some choosing to write poems or backpack through Europe like the sons and daughters of the idle rich. In the eyes of those benefiting from the imposition of strict discipline upon labor, the unemployed were not victims, but outlaws.
Not only did this violate the logic of market forces, but it also challenged the culture of the post-feudal work ethic as explained so well by Max Weber. Since jobs were available, economists - like the three laureates - took on the task of explaining this phenomenon and thus providing policy tools to restore order to economic orthodoxy. The intellectual contributions of the three came to be called “search theory” – an explanation of how the buyers and sellers of labor power can fail to match up. In other words, they sought to account for why workers were not automatically and always herded into jobs despite the assumption that work was necessary to survive. They postulated that “frictions” – inhibiting factors – allowed for jobs to be unfilled while workers were idle. Their “frictions” were hardly novel or earthshaking: “tough” labor regulation restricting firings, “generous” unemployment benefits, inadequate or inappropriate skill sets, and geographical distance between jobs and workers, for example.
It should not escape notice that none of these “frictions” touch on the fundamental friction between workers and employers, namely, the fight for the distribution of the economic surplus. None of these “frictions” address the kind of employer-friendly unemployment that pressures workers into pay cuts and concessions or increases the rate of exploitation. To state the obvious, isn’t it possible that workers do not take available jobs because the available jobs simply do not pay enough? Is this not a street-corner answer to “search theory”?
But these are answers to different questions, questions of little interest to academics accustomed to seeing employees as numbers in calculations or variables in complex equations. Moreover, workers or their organizations do not fund academic research or make generous awards to economists.
Does the Nobel-award-winning research help us understand or overcome the current crisis of unemployment as The Wall Street Journal proclaims?
No, not at all. It is irrelevant and, should it influence policy, potentially disastrous. The current tragic unemployment rate is the result of two years of uneven class war over the carcass of a severely wounded economy. Unemployment is the casualty count of the working class. Profits are the war booty of the employers. Government and its policy makers have sided decisively with the profit-seekers.
Unlike the period in Europe studied by the three economists, there are far too few jobs available today. (The Wall Street Journal in its article hailing the awarding of the prize provides a deceptive chart that shows a growth in available jobs since the worst moment of 2009, a growth that does not even account for those newly entering the job market.) The unfavorably geographical distribution of jobs today is not a matter of leaving home for another city or state, but leaving for an entirely different time zone! Witness the thousands who travel overnight to attend job fairs or apply for a few dozen jobs. The mounting foreclosures, the explosion of food stamp applications, and the growth of unclaimed medical prescriptions hardly point to “generous” unemployment benefits offering a cushy life. And of course there are no “tough” job regulations that restrained the cruel, massive layoffs of the last two years.
At its core, “search theory” finds no fault with the reigning economic system. It identifies no “friction” between the needs of people and the relentless drive for profit. It is blind to a decade of slow or non-existent job growth coupled with growing concentration of wealth and the quickening rise of after-tax profits as a portion of national income. “Search theory” dares not search in this territory.
Instead, this “groundbreaking” theory seeks to motivate the unemployed to try harder, move to low wage areas or retrain for subsistence jobs. It justifies the limiting of unemployment benefits. For all its theoretical sophistication, “search theory” is simply the latest version of the carrot and the stick – in today’s world, a shriveled carrot and a heavy stick.
Zoltan Zigedy
zoltanzigedy@gmail.com
“Economic science,” as its practitioners refer to it, has moved in two directions at once: further away from the reality of economic life and closer to self-sustained scholastic exercises understood and appreciated by the few who work in those same close quarters. Yet never does it travel too far from the ranch of apologia for the holy scriptures of capitalism.
Capitalist triumphalism – the view that all deep questions about the fundamentals of economic structures and activity have been settled – dominates and informs recent academic research in the field. If one suspects a parallel with the religiously driven dogmas of Ptolemaic cosmology, it is there to be found. The world of modern academic economists assumes, with no need to prove it, that economic activity is and can only be understood with the basic units of markets, individual actors and their sets of interests, acquisitive motives, and private ownership. This is the game and the only game. Outsiders – Marxists and renegades from economic scholasticism – are not allowed to play, since they fail to abide by the rules.
But sometimes reality intercedes with brute economic events that challenge this smugness. As the often-brilliant John Strachey wrote in 1935 during the midst of the Great Depression:
The capitalist world… has its experts, its economists. The phenomena of crisis lie, however, outside the scope of their science… They have evolved a science of economics which seems to explain the exact workings of the capitalist system, and (incidentally) justifies those workings in every respect. There is only one difficulty. The system periodically refuses to work… (The Nature of Capitalist Crisis, p.8)
Today, we are in the throes of a similar crisis and economists are similarly fumbling for explanations and solutions.
In the spotlight of today’s crisis is the seeming intractability of extremely high unemployment, a problem even more embarrassing to capitalist apologists in light of record-setting profits.
Thus, many, even far outside of the academic world, expectantly turned with great interest to the announcement that three economists would share the $1.5 million Nobel Prize for purportedly insightful work on unemployment. Peter Diamond, Dale Mortensen, and Christopher Pissarides won the 2010 prize for their “groundbreaking ideas that help explain why unemployment remains stubbornly high in the US and other developing countries,” as hailed by The Wall Street Journal.
Sadly, any such expectations would be quickly shattered. The core problem addressed by the three scholars is not the unemployment of the moment, but the relatively high unemployment associated with the European economies of the 1980s and 1990s. At that time, France, Germany and other advanced economies enjoyed strong growth, rising living standards, viable social welfare benefits, but relatively high unemployment – high relative to the theoretical fundamentals of economic dogma. Conventional thinking dictated that growth and rising standards should motivate Europe’s unemployed to seek the available jobs, but instead many chose to obstinately accept the benefits of the social welfare system while settling for a measure of leisure in an abundant society. Essentially, they were redundant, but without courting starvation, some choosing to write poems or backpack through Europe like the sons and daughters of the idle rich. In the eyes of those benefiting from the imposition of strict discipline upon labor, the unemployed were not victims, but outlaws.
Not only did this violate the logic of market forces, but it also challenged the culture of the post-feudal work ethic as explained so well by Max Weber. Since jobs were available, economists - like the three laureates - took on the task of explaining this phenomenon and thus providing policy tools to restore order to economic orthodoxy. The intellectual contributions of the three came to be called “search theory” – an explanation of how the buyers and sellers of labor power can fail to match up. In other words, they sought to account for why workers were not automatically and always herded into jobs despite the assumption that work was necessary to survive. They postulated that “frictions” – inhibiting factors – allowed for jobs to be unfilled while workers were idle. Their “frictions” were hardly novel or earthshaking: “tough” labor regulation restricting firings, “generous” unemployment benefits, inadequate or inappropriate skill sets, and geographical distance between jobs and workers, for example.
It should not escape notice that none of these “frictions” touch on the fundamental friction between workers and employers, namely, the fight for the distribution of the economic surplus. None of these “frictions” address the kind of employer-friendly unemployment that pressures workers into pay cuts and concessions or increases the rate of exploitation. To state the obvious, isn’t it possible that workers do not take available jobs because the available jobs simply do not pay enough? Is this not a street-corner answer to “search theory”?
But these are answers to different questions, questions of little interest to academics accustomed to seeing employees as numbers in calculations or variables in complex equations. Moreover, workers or their organizations do not fund academic research or make generous awards to economists.
Does the Nobel-award-winning research help us understand or overcome the current crisis of unemployment as The Wall Street Journal proclaims?
No, not at all. It is irrelevant and, should it influence policy, potentially disastrous. The current tragic unemployment rate is the result of two years of uneven class war over the carcass of a severely wounded economy. Unemployment is the casualty count of the working class. Profits are the war booty of the employers. Government and its policy makers have sided decisively with the profit-seekers.
Unlike the period in Europe studied by the three economists, there are far too few jobs available today. (The Wall Street Journal in its article hailing the awarding of the prize provides a deceptive chart that shows a growth in available jobs since the worst moment of 2009, a growth that does not even account for those newly entering the job market.) The unfavorably geographical distribution of jobs today is not a matter of leaving home for another city or state, but leaving for an entirely different time zone! Witness the thousands who travel overnight to attend job fairs or apply for a few dozen jobs. The mounting foreclosures, the explosion of food stamp applications, and the growth of unclaimed medical prescriptions hardly point to “generous” unemployment benefits offering a cushy life. And of course there are no “tough” job regulations that restrained the cruel, massive layoffs of the last two years.
At its core, “search theory” finds no fault with the reigning economic system. It identifies no “friction” between the needs of people and the relentless drive for profit. It is blind to a decade of slow or non-existent job growth coupled with growing concentration of wealth and the quickening rise of after-tax profits as a portion of national income. “Search theory” dares not search in this territory.
Instead, this “groundbreaking” theory seeks to motivate the unemployed to try harder, move to low wage areas or retrain for subsistence jobs. It justifies the limiting of unemployment benefits. For all its theoretical sophistication, “search theory” is simply the latest version of the carrot and the stick – in today’s world, a shriveled carrot and a heavy stick.
Zoltan Zigedy
zoltanzigedy@gmail.com
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