BOOM! Crash! … Why we’re all losing money
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ANALYSIS, USA — Wealthy white people with academic economic dogma are a plague on all our wallets, let alone houses.
The economics brains trust of our last 8 years or so of US (and British & Australian) economic policy have been a few rich white guys, right-wing academic economists from big universities like Harvard. These folks theories are to blame for severity of the coming US recession.
Why?
Most universities (like Harvard) have a fair mix of dissent; but the current US administration selected all economists (and think-tanks) with far-Right free market views.
Clinton, had a mix of economists from Harvard and other universities who all disagreed. As an educated and intelligent leader, Bill Clinton charted a middle course between competing economic theories.
By contrast, the current US administration has never been comfortable with dissent. Ideology, not dissent.
The current US presidency has been among the most radical, overturning economic, security, social, education, health, environment and basic services policy.
Its main goal seems to have been to privatize what was public, and change the nature of Government, removing many public goods and services; except Defence.
Doesn’t privatization make us wealthier?
Short-run, and to varying degrees.
Privatization of public goods is fine, even appropriate, at times where there is a strong case on economic grounds, perhaps due to inefficiency.
It normally leads to a sudden rush of wealth as public money is unlocked, making investment bankers, economists, business consultants, services firms, all wealthier.
Some of this money, in a second cycle, then flows into the pockets of restaurants, supermarkets, delis, florists, wine merchants, personal services as those wealthy bankers spend. (well mainly around Manhattan, and major cities).
This is not wealth where you live…
None of this creates wealth in small towns, or small regions, or secondary cities. Where most citizens live.All wealth of a lasting nature created where people live, is local-created wealth. Something the bankers, and far-right economists do not always like.
Instead, analysts, finance people and economists like wealth as big numbers on paper, and that means corporate wealth, which means big chains, big box stores, and a ready supply of cheap labor from people who consume locally, but don’t earn money from local businesses that compete with corporations.
Local economies don’t matter to Wall Street or economics theorists, except as an aggregate source of consumption, only the big aggregate numbers which they are assessed upon.
Main Street doesn’t matter to Wall Street.
Back to the money - after that money is spent, then what?
We the taxpayers have to pay directly for services that we did not have to.
And as the provider is often a monopoly or duopoly they can set prices. And eventually, they act, as is their legal right, to maximize profit.
Over a few years, landlords, shopping malls, big chains note the new wealth, and increase prices or reduce quality, meaning pretty soon the money floating around the economy is back in a corporations pocket.
And that corporate money will get fed in further executive pay, starting the cycle again.
(Oh and the corporations will drive out local industries, forcing local small-town people to accept lower wages from big corporates.)
Tax cuts are similar. Defense spending can be too. Interest Rate cuts. In many ways, these are ways of pumping money into the economy, and into the corporations.
This is why people can feel wealthy or poor, independently of the state of the broader US or Australian economy. Stimulus does not distribute its effects evenly nor consistently…
Stimulus is like a jolt of caffeine…
It wakes the economy up, makes it more productive, for awhile. But drink enough caffeine and pretty soon you are moving from 2 to 8 cups a day, and it all ends in a blur on No-Doze!
In short, each stimulus is a short or mid-term. A stimulus works until that new stimulus gets factored in to the assumptions all of us make about business conditions.
This can be hidden as some stimulus flows through the economy multiple times. But each stimulus has an expiry date.
Wall Street are addicted to stimulus, which is why analysts praise it. Every time a rate cut or a tax cut, they get on TV and sing the chorus. It’s just more money for them. Personally.
Meanwhile, back at the ranch,the US economy is hopped up on an 8-cups a day habit, and all because some right-wing professors wanted to try out a pet economic theory on ‘free markets’.
Like other idealogical extremists, they will say their theories just need more time to work. Or argue over how their ideas were implemented. No one will admit that they created an imbalance of too great a magnitude between private and public.
Economics is just competing theories… not truth
And we have a US administration that has given them free license to try theories, because this US administration is personally so wealthy economic problems do not effect them. Everyone keeps forgetting economics is a series of competing theories, to be balanced.
In the professors and politicians defence, such a nice sounding theory, ‘free’ markets. Sounds like liberty.
Well it’s not. It’s liberty for the very upper-end of the rich. Who gets most of the money the Wall Street banker, or the florist? Or the florists landlord?
The florist will find that his rent will rise, as his landlord notices he is making more money. His suppliers will want to charge him more. This in economists terms is fine, but just ask the florist how he feels…!
Meanwhile the banker can work on his 3rd wife, keep his mistress and for a few, snort more cocaine paid for with the lives of Bolivian children, a Wall street habit described colorfully by the Wolf of Wall Street… and many others…
And the US government (like the former Howard ministers in Australia) just waltz around telling everyone to ‘maintain their confidence’. Once again, it is the consumers fault the florist is running out of money. Not the landlord. Nor the banker. Nor the government.
Consumers have to go into credit card debt so a few top bankers can snort the amount of cocaine and entertain the number of hookers they are accustomed to.
Surely that cannot be the message of the right-wing economists?
Reminds me of a joke.
How many economic professors does it take to change a light-bulb?
Zero. Economists won’t change a bulb until one of them writes a paper explaining the impact of the bulb on macro-economics, which all peers agree to.
Never, in other words. Because theory is fine, in theory, until it is implemented.
And just now, the US government bails out investment bankers at Bear Stearns who made a fortune during the boom, yet failed to save money, taking many risks.
To my mind — bankers live by the snort, die by the snort.
Why is this so sudden?
It’s not. The risk factors have been there. 2thinknow have been able to predict the coming recession without a college campus full of analysts.
But no one wants to leave a party first. And in this case, they want to make money until the end of the party, which is why they are so bad picking the end.
It’s not sudden, why does it seem so…
Economics has a great many lag factors, so decisions made 7 years ago are affecting economic policy, have short (months), mid (2-4 years) and long (4-10 years) effects.
And 8 years ago, the economic power in America was handed to far-Right economists, who believe in private ownership, globalization, and creating greater wealth by removing all barriers to business and trade (at least on their side).
In an environment without fences, the biggest predator wins for awhile, until the other animals develop defenses or learn which routes the predator comes from.
Trade is very similar. Remove all the barriers that block the USA, and the USA will win for awhile, but pretty soon the other countries build clever fences, and figure out ways to avoid your advances.
And privatization is not a panacea, as we discussed. It creates initial wealth.
Anyone can create short-term illusion of wealth. Corporate managers are masters of short-term results. Just borrow money and spend. Which is economically what the USA is doing at current.
But long-term, a cycle of stimulus and ignoring other nations responses to US policy have cost the US. That is coupled with excess debt.
Of course it hasn’t personally cost the super-wealthy group, that this US administration, and the Australian former-Howard government represent.
All the politicians have done, on the advice of academic theories, is create a climate with a big boom leading to a big crash.
It’s like a pyramid. Because when it comes down to it, most people who work in banking and finance do not understand how to make money, just to take fees from a transaction. And the zeros are just numbers in a spreadsheet.
And that won’t last forever… Think, sub-prime.
So what was the alternative?
A stable, steady growth curve, growing slowly, but consistently. Across the broader nation, not just a few uber-rich cities.
Local industry, local economies, local community create pleasant healthy places for our family to grow-up and a modicum of wealth.
2thinknow have identified, drawing on the works of others , a number of strategies for real wealth where it counts, in local regions.
And indeed regionality is returning, slowly. Because quality of life is not about a Wall Street index, it’s about where you eat, work and live. Your innovation city or town.
What have we got instead?
Right-wing free marketeers in Washington and Wall Street have created massive and rapid wealth by removing rules, regulations and many would say, human decency, from the system.
We can all make more money in an environment of less regulation, but once the dust settles the wealthy will be wealthier and the poor, well… poorer.
Most alarmingly we have begun to disconnect labor from wealth. Meaning the concept of work hard, and get ahead will die, and is, indeed, slowly dying.
Asset Speculation … leads to Bubbles and BANG!
This leads to a less productive country, as asset speculation becomes the main method of wealth. And that cannot last. Economic history started with the Tulip bubble…
We all have to consume less, not more. And consume what we consume locally.
Asset bubbles are what the right-wing US professors are heading towards. And that may not represent the values of a majority of Americans (or Australians.)
Share your views…
Christopher Hire:
Author of the Global Innovation Review, and Chief Editor of this journal. Focussed on innovation, innovation cities and positive social change globally.
Monkey, not see, not hear and not speak. what a monkey =)
Mar 19th, 2008 at 7:39 am
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