Economic turmoil: What needs to be done

Today the capitalist economies of the world are in deep trouble. Some economists have theorized that the linkages between the United States and the rest of the world had been weakened as other nations gained more economic autonomy. A decoupling thesis was presented claiming that a crisis in one part of the system (say, North America) would not affect other major parts (say, Europe and Asia). We now know this is not true. Toxic assets were sold around the world, and banks in Europe, Asia, and Japan are in trouble too. Housing bubbles have burst in Ireland, Spain, and many other countries. In Eastern Europe, homes were bought with loans from Swiss, Austrian, and other European banks, payable in European currencies. As the economies of Hungary and other nations in the region, which financed their explosive growth with heavy borrowing from Western banks, have gone into recession, their currencies have suffered a sharp deterioration in exchange rates. This means that mortgage payments have risen sharply, as it now takes many more units of local currency to buy the Swiss francs or euros needed to pay the loans. In some cases, mortgage payments have doubled.




Many countries embraced neoliberalism as fervently as the United States, and now they are paying the piper for years of deregulation. The most extreme case so far is Iceland, which actually went bankrupt and had to seek help from the International Monetary Fund. Countries that relied heavily on exports, such as Germany, Japan, and China, are facing seriously eroded economic conditions as U.S. consumers, once the world’s buyers, sharply cut their spending. International economic linkages are working to make the crisis intractable. When something bad happens in one place, it reverberates in many other places. Declining demand in the United States causes lower incomes elsewhere, and these cause incomes here to fall further—and on and on. If Hungarians default on their mortgages, Swiss and German banks might fail, and this will cause trouble for U.S. banks—and on and on. In the spring of 2009 the IMF, with newly infused funds from the European community, helped Eastern Europe to step “back from the brink of collapse” (according to the Wall Street Journal) by providing loans to Hungary, Belarus, Ukraine, Latvia, Serbia, Romania, and Poland.



Such drastic actions are needed, even on capitalism’s own terms. There is no doubt that the most efficient and straightforward way to proceed would be for the federal government to nationalize some large banks, wipe out their shareholders, and put these banks on a firm footing. The U.S. auto industry must be both saved and transformed, lest millions more become unemployed. A national health care plan is mandatory, both to lower business costs and to keep workers healthy. Home owners must get some relief, and household debt must be reduced if demand is ever to be robust again. Ideally, the financial system should be strictly regulated if capitalism is to avoid future bubbles (though such strict regulation is probably impossible under the present system). The obscenely unequal distributions of income and wealth have to be dramatically changed if some sort of balanced growth is to take place. Wages have to rise for the same reason, as well as to reduce the debt burdens now choking so many working-class families.



The trouble, however, is that even though these changes might help develop a more robust capitalism, from the perspective of the capitalists themselves, most of these actions are not desirable—nor is it very likely that they can or will be made. Businesses find themselves inside a system based on vicious competition, a “beggar thy neighbor” enterprise writ large. What is more, every sector of business has a hold on some politicians and influence in every public agency. Washington is teeming with lobbyists, and these people often write the legislation that is supposed to be in the public interest. No matter what the government initiative, self-interested parties try, and often succeed, in bending the legislation and its implementation to suit their needs. We can’t have a true national health care system because the insurance and drug companies, plus their allies in medicine, won’t stand for it and have the power to prevent it. The government cannot get the financial system in order because politicians are much too cozy with the bankers they regulate. Private housing interests stand ready to stop public housing. The same is true for public transit and just about any other good thing you can name. If the new administration moves strongly to combat global warming and build a greener economy, we can be assured that no matter the gravity of the problem, the calculus of private interest will win out in the end. From society’s point of view, and certainly from the perspective of workers, capitalism is an irrational system.



And if all this is not problem enough, there remains the underlying tendency toward slow growth or stagnation. Even President Obama’s stimulus package will not come near to solving the fundamental stagnation problem, although it may help a large number of people. In addition, some help and comfort is being provided through extending unemployment benefits and increasing funds to programs such as food stamps and providing jobs through spending programs. The original Great Depression programs didn’t end the Depression, so is there any reason to suppose that more limited government spending programs will end this one? It is true that the Great Depression work programs were nowhere near large enough to bring back prosperity. But today, even with the insights of John Maynard Keynes and decades of economic research, the fiscal package of spending programs, tax cuts, and deficit-financing are, according to the best and brightest mainstream economists, woefully inadequate to the task at hand: replacing several trillion dollars’ worth of reduced spending by the private economy, as well as state and local governments. That the U.S. government is not going to do what would have to be done to end the Great Recession will not surprise readers who understand why the Great Depression did not end—until the “epoch-making” spending of the Second World War did the job. Profit-seeking private interests always stood in the way. And, unfortunately, the U.S. stimulus package is not much larger than that of the European Union or Japan.



The U.S. economy is in for a long period of anemic growth and high unemployment. There are no obvious sources of demand that will grow enough to overcome the many factors repressing demand. It is not clear what, if anything, can replace the huge growth of debt, speculation, and bubbles that propelled the economy for so many years. Hard times have come, and hard times are ahead. Certainly governments here and elsewhere have done and will continue to do things that spur some growth and alleviate some of the misery. And it may be that another bubble will develop, perhaps based on some sort of “greening” of capitalism, spurred by large government spending. Then the process will begin again, with who knows what conclusion. In this regard, it is deeply troubling to observe that economic policy appears to be subservient to the same financial interests that brought us to such a sorry state in the first place. The federal government seems unwilling to step too hard on the toes of finance, and has larded nearly every one of its programs with significant monetary incentives for the big banks and other financial firms. We are either giving them money outright or making loans available at bargain basement interest rates, but we are not making demands on them to change their ways. The idea seems to be to return the financial system to its pre-crisis structure. If this isn’t a recipe for a disastrous future reprise of what is happening now, we don’t know what is.



But let us ask ourselves an important question. Is the roller-coaster ride that is capitalism what we want? Suppose that, in a few years, somehow things got back to “normal,” with the GDP growing at between 2.5 and 3 percent, with official unemployment between 4 and 5 percent, with wages growing only enough to keep up with inflation. Suppose even that we have a better health care system than we have now. What then? The “health” of the U.S. economy now depends on increasing exploitation at work, supposedly compensated for through ever-rising private consumption. What have been the consequences of this? Longer, harder hours have compromised the health and quality of life of workers, reducing their best hours to meaningless drudgery. Rising consumption of more meaningless “stuff” has polluted our planet; it has filled our houses with junk we never use; it has forced us to think we need bigger and bigger houses, which in turn has compelled us to move into the suburbs and exurbs, wasting power and water, creating vast expanses of ugly developments, and destroying much of our natural habitat. Consumption by individuals, based on the amount of their wealth (purchasing power), increases the political power of the businesses that benefit most from a system based on private profit, and therefore always relegates collective needs to second place. The need for ever-growing private consumption also encourages an exploding sales effort, to convince us to keep up the buying that will keep the profits flowing and the economic ball rolling. Advertising and the products it promotes must always be “new” and “improved,” to entice us to buy, although in reality this means that goods and services must become even more quickly obsolete, or perceived to be so. The entire system becomes one of making things, throwing them away, and making new ones. Waste begetting waste, begetting still more waste.



It is impossible for ever-higher levels of consumption to make us happy. The logic of the system is that we must be perpetually unsatisfied, always wanting more. In a system that guarantees considerable inequality, we are bound to be envious of the consumption of those richer than we are. But every time we think we have reached a higher level of consumption, we see that there are still many richer people above us. And if those below catch up with us, we have to consume more to stay ahead. It could be argued that a consumption-based society would be more acceptable if there were a rough equality of spending power. But this is—and cannot be—the case; capital accumulation will not allow it. We are not and cannot be “slouching toward utopia,” to use the inapt phrase of economist J. Bradford DeLong—referring to a utopia of a worldwide majority “middle class” of happy consumers, all buying big-screen televisions and nice automobiles. And does DeLong imagine that the world could ecologically support billions of human beings consuming at a pace on par with middle-class U.S. households? It is estimated that it would take the resources of four worlds like ours to provide the equivalent to what is considered a modestly upscale U.S. consumption pattern for all of the planet’s 6.5 billion people. Now, we are certainly not arguing that everyone should be poor or that those currently at the bottom don’t need an adequate level of consumption, especially food, clothing, and shelter. But we are saying that the so-called consumer culture that characterizes the United States and a few other rich countries is not a model worth fighting for, nor is it ecologically sustainable.



What is worth fighting for? Perhaps this severe recession offers us an opportunity to ask this question. This crisis has revealed the rotten foundation of our economy and called into question the neoliberal policies and ideology that have deepened the rot. We cannot sustain ourselves with ever-larger doses of debt relative to the underlying economy. We cannot be happy in a world of rising insecurity: How will we pay the debts? Where will we find decent and secure employment? How will we cope with health problems? How will we survive in old age? Will our air, water, and food supply continue to be poisoned? We cannot be happy in a world in which the fruits of human labor are distributed in an obscenely unequal manner. Inequality itself causes a host of problems, from lower life expectancies of those further down the ladder to more people in prison, and it raises the level of insecurity. The rage of the poor and the fear of the rich are the legacies of the growing gap between them.



Finally, and of the greatest importance, we cannot be happy with the nature of the work most of us are compelled to do. Millions of us are unemployed, and this is a bad thing. But for those working, the stress is rising, as fewer people are being forced to do more work, and employment becomes more precarious. Employers use periods like this to discover ways to reduce the size of their workforces permanently. They continue the strategy of lean production, using as little skilled labor as possible, constantly adding stress to the system so that work can be sped up, and then cutting benefits as much as possible. There is no way that the majority of people can do meaningful work in a system like this. Labor is simply a cost of production, to be minimized and on a par with a piece of equipment or fuel. What does it mean when “The only thing worse than being employed is being unemployed”?



It seems to us that there are many things worth fighting for. Here is a list for starters. Readers will, no doubt, think of others.



•Adequate food for everyone. For fifty years, Cuba has provided a minimum food basket for each person. Imagine what a rich nation like the United States could do here. Food production and distribution should be studied with an eye toward producing all food as ecologically sound (perhaps organically) as possible, and making sure that each and every person eats a varied and healthful diet.

•Decent housing. As we argued above, attractive and relatively inexpensive housing could be built by a public corporation, and workers could, at the same time, be trained to build and maintain houses. Energy efficiency could be incorporated not only into the design of the houses but also into the layout of neighborhoods and public spaces. Existing buildings could be rehabilitated, and, if some have to be demolished, all possible materials could be salvaged. Imagine how much housing could be built and rehabbed, just with the money the government has given to the notorious AIG company.

•Universal health care. The health care system of the United States is a disgrace—wasteful, costly, and unequally distributed to an extreme degree. Human health cannot be subjected to the profit motive without dire consequences, as anyone who is sick and without money knows.

•Full employment/good jobs. Work is a necessary and essential human enterprise. It is the way we transform the world and the fundamental way in which we use our capacity to think and to do. Therefore, employment that encourages the use of our full human capacities must be a right. The government must itself create as much socially useful employment as is necessary to achieve this goal. Good jobs must be those in which the hours of work are short enough to allow working people ample time for meaningful leisure. A shorter workweek and workday would have the added benefit of creating more jobs.

•Quality education for all. Education in the United States parallels health care, in terms of its inadequacies. Good schooling cannot be based upon such inane principles as the cynically named No Child Left Behind Act. Education must build from the experiences of the students outward, toward increasingly complex and abstract ideas. Creativity, independence of mind, and healthy bodies must take center stage—in buildings and surroundings that are conducive to learning

•Adequate income in old age. The current Social Security system is perhaps the best-managed enterprise in the federal government. It is a universal system that provides essential resources—retirement, disability income, health care, funds for minor survivors—to tens of millions of persons. It is a system that could and should be made much more generous, with less reliance on regressive payroll taxes.

•Enhanced public transportation. All manner of efficient, energy-conserving, cheap, and high-speed public transportation should be built, in as many places as possible.

•A commitment to a sustainable environment. Whatever increases the pollution of our water, land, and air must be rejected. Whatever raises the earth’s temperature must be rejected. We must stop thinking of our natural resources as private property, to be endlessly exploited and polluted, and begin thinking of them as the wealth of us all. We must make more careful use of renewable resources and the plan for reduction in use of non-renewable resources.

•Progressive taxation. We have seen, in this great recession, that we have been robbed and cheated by a tiny minority of very rich people. These thieves have contributed nothing to the social well-being, and in fact have greatly detracted from it. The incomes of the very rich should be punitively taxed, and a high degree of progressivity must be restored to the tax system. Whichever activities are aimed at merely short-term and socially unproductive gain must be heavily taxed.

•A non-imperialist government. There is every reason to believe that the foreign military operations of the United States are extraordinarily harmful, both to people in the rest of the world, and to those in the United States. We must demand peace and an end to state violence. Period.

•Labor- and environment-friendly trade. Trade among nations and movements of people from one country to another can be a wonderful thing. However, for this to be so, economic relationships among nations must be based on the fact that human beings and Mother Earth are the basis of all production and exchange. Concern for both must be central to all economic relationships, within and among nations.

Can these goals be achieved inside the present economic system? Perhaps some can in very limited ways, but most of them clearly cannot. The system simply will not allow it. Pragmatists say that these things are utopian, that we have to work within the system and achieve what we can, gradually and in a piecemeal fashion. It seems to us, however, that this “pragmatic” approach is utopian. We have to stick to our principles, come hell or high water. Only if we do, can we keep this economic system on trial, challenging it to do what its apologists say it does. We may even get a few crumbs from those who control the political economy, if only to subdue and pacify us. But, if we steadfastly continue to demand what should be ours by right, by virtue of the fact that we are human beings, we will push the system into a crisis of legitimacy. Then, as people begin to see that this system can never deliver what is needed for us to realize our capacities and enjoy our lives—and cannot function without causing severe environmental degradation—they will begin to consider and put into practice alternative mechanisms of production and distribution, those that are democratically controlled and have as their aim the achievement of maximum human happiness. Ours could be an economy and society whose purpose is not private gain, but to serve the needs of the people—because it is truly of the people. This can be achieved by providing (directly, if required) the necessities of life for all, while protecting the earth’s life support systems. People democratically deciding the direction and details of the economy—production, as well as consumption, with the purpose of meeting human needs. In other words, socialism.