It's The Economic Paradigm, Stupid!

by: DaveJ

Mon Jul 20, 2009 at 11:45

I am happy to announce that beginning today I will be working as a Fellow and blogger with Campaign for America's Future.  This post introduces the areas I will be pursuing.

The economy is terrible.  There aren't enough jobs.  Most of the jobs that are still there are not paying enough for people to keep up, and people are afraid they could lose them tomorrow.  So we all have too much debt.  We have too little health care.  We have too much stress.  And in the bigger picture we have too little power to do anything about it.

They say we're reaching a "bottom" and that there are "green shoots."  But I am afraid that this isn't your father's recession.  I'm afraid this economy isn't a pendulum that has swing too far in one direction, ready to be pulled by natural forces back to the other side.  I am afraid that this isn't a "business cycle" pattern with a fall, then a bottom, then a recovery where all the shoppers return to the stores, all the jobs come back and growth picks up where it left off.  Even "green shoot" optimists admit there will be few new jobs if there is any recovery.

It may be that we are not in a period of waiting for things to "get back to normal."  Many people think that this economic collapse IS the return to normal.  

DaveJ :: It's The Economic Paradigm, Stupid!
For decades concerned observers have warned about problems with the "sustainability" of our economic paradigm.  If you look at charts describing changes in the economy, environment, population - all kinds of things - you see that in recent decades they all change and start to move, often exponentially, in directions that obviously cannot be sustained.  They look like this:

A wise man once said that when something is unsustainable it can't be sustained.  And here we are.  A very good explanation of the problem of unsustainability of our economic paradigm is The Story Of Stuff.  "It's a linear system and we live on a finite planet."    

It is not just the economy out of whack.  The business practices that brought us here -- overextraction, overextension, overleveraging, overconsumption -- have also whacked the planet's resources.  The fisheries are increasingly depleted.  The aquifers are increasingly drained.  The forests are increasingly logged.  The landfills are increasingly full.  And, of course, the planet is increasingly hotter.

Our economic system has also taken a toll on the people.  Too many hours at a stressful workplace with too little sleep have burned many of us out.  Our thinking and identity are about our jobs, not our spirit and character.  Our values are devoted to markets with many of us placing making money over loving and caring for families and others.  And there's no time for that stuff anyway.  We have become consumers instead of citizens and humans.  Decades of falling wages, decreasing savings and increasing debt have tapped us out.  Consumption has used us up.  And we're fed up.

So things reached a breaking point and broke down.  This has been coming at us for decades.  And here we are.

If this economic collapse was the consequence of decades of an unsustainable economic model, then what do we do?

The government, of course, has been working to fix this problem within the context of the current failed economic system.  And in that context they have been doing a good job.  They lowered interest rates to encourage even more borrowing.  The stimulus pumped borrowed money into the economy to cover the loss of demand from people and business.  They raised the FDIC protection levels so we're not all wiped out if banks fail.  They bailed out overleveraged financial institutions so they could again provide credit.  

Of course the stimulus is better than none.  We need unemployment benefits and infrastructure investment.  And investment has a longer-term payoff.  

But what happens after the stimulus? What do they think will drive our economy back to what they think of as normal?  Will it be renewed manufacturing of cars?  If we don't bring back the good-paying jobs, who will buy them?  Same for houses.  Same for TVs and appliances and furniture and jewelery and expensive shoes and all the rest.

In a June interview on the Lehrer News Hour, Treasury Secretary Geithner said that they are doing what they need to do to "get growth back on track."

Back on track?  Does he mean we will fish out the remaining fish?  Cut the rest of the trees?  Drain the rest of the aquifers?  Take the tops off the rest of the mountains?  Does he mean that we will run up the rest of the credit cards?  Will we cover the rest of the land with even bigger houses and subdivisions and strip malls? Will we export all the rest of the jobs? Will we hand the rest of the nation's income and wealth over to an elite few?

I don't think they are going to get things back "on track" by applying more of the same "solutions" that got us to where we are today.  Will they bail out more companies, making them even too bigger to fail?  None of the fixes will work if the problem is that we have reached the limits of sustainability of the economic model we have been following for decades.

So what can we do to change the system itself? How do we restructure the model - the economic paradigm - in ways that let We, The People enjoy and share the benefits of our economy?  There are a number of clues that I will be writing about in my work with Campaign for America's Future. Maybe we can follow the clues and find answers.

One obvious part of problem is that we have an economic system in which we tolerate a few people controlling -- and thereby getting most of the benefits from -- things that should belong to and be controlled by all of us.  Aren't We, The People supposed to be making the decisions here?  And shouldn't we make decisions that benefit all of us instead of just a wealthy few?

At the center of this problem is the role of the corporation in our society.  Corporations have amassed immense power and that power is used to control the country's decision-making processes, always to the benefit of the wealthy few.  Getting a grip on this problem requires us to regain understanding of why we have corporations in the first place.  We, The People enacted the laws that allow corporations to exist because we felt that it would be to our benefit to do so.  And to the extent that they are now benefiting a few at the expense of the rest of us, we can change the laws.  Let that sink in.

Another thing we have to get control over is the concept of externalization.  Why do we allow companies to externalize their costs while internalizing the profits?  In other words, companies are allowed to push costs onto the rest of us, but are not asked to share the resulting profits with the rest of us.  We even let them see and treat people (us) as "costs" -- a layoff pushes the responsibility to support a worker onto the community while the company keeps the wages they were paid.

When a company replaces a worker with a machine, the company pockets the wages that would have gone to the worker and the worker is discarded.  But now we are learning that eventually enough workers are discarded that there is no one to purchase what those workers replaced by machines were making.  So the company and the economy lose, too.  This just doesn't work.

Here is a big one: We need to understand that actually making things is what drives an economy.  America became an economic powerhouse because we made things here. China is an economic powerhouse because they make things there.  I'll be writing about that a lot.

These are just a few of the things that I will be exploring in the coming months.  Let's see where it goes.

*About the title.

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A great post (4.00 / 1)
Great work.

I think the problem we face is that the economy is global, but the institutions that control the key economic actors (governments, labor unions) are not.  As result any solution always runs up against the fact that capital will seek out places where it has the fewest restrictions.

I really don't know what the answer is.  In many ways globalization has outrun the ability of existing models to explain it.  We lack, I think, a real program because we lack a theoretical explanation about how it could work for everyone involved.

So we make proposals around the edges (Fair trade, industrial policy) knowing in our hearts that this is just marginally delaying the inevitable.  

The answer has to be reform of the big international agencies (0.00 / 0)
If the WTO were set up to allow states to engage in heavy protectionism against nations that refused to have environmental and labor standards, or hell, if they actively penalized states that did so, and if the old Bretton Woods organizations acted in a way that hedged against corporations, rather than scaffolding them, then you would have an international check on a lot of these things.

But it would require reform of the big economic international organizations.  Something that the status quo people obviously oppose, and most of the anti-WTO activists are angry enough at these institutions, and desperate enough to abolish them, that they don't see the opportunity offered.

[ Parent ]
In addition to 'The Story of Stuff', let me recommend... (0.00 / 0) additional resource that is potentially invaluable in helping to understand where we are in terms of energy, the environment and our economic paradigm. It's by Christ Martenson and it's called The Crash Course.

The Crash Course first came to my attention about a year ago via Andrew Tobias when he used his daily on line column to implore people to watch this.   Andrew Tobias?  Is he some wingnut loon?  Well, I guess if being a best selling financial author and the treasurer of the DNC meets your definition of "wingnut loon", then the answer would be yes.  For me, those things don't define "wingnut loon", so I took his advice to watch this.  And after I watched this, I went back to the beginning and watched the whole thing.  Several times.

Bascially, the Crash Course ties the topics of peak oil, our debt based economy and the depletion of environmental resources together into a narrative that is educational, entertaining and compelling. When you see the housing bubble put in context along with burst bubbles in equity and the explosion of debt, it can get pretty scary.

Anyway, it's not a doom and gloom type thing. It gets its name comes from the fact that it represents a three day seminar that's been boiled down to three hours or so, and those three hours have been divided into easily digestible 2 to 20 minute chunks that you can review at your own pace.  In effect, it's a three hour crash course. Which is where the name comes from.

If you're looking to understand the paradigm we've been living under, I can't think of a better place to start.

Oops! It's Chris Martenson, not.... (0.00 / 0)
...Christ Martenson. (How embarrassing. Is there any way to fix a typo like that in a comment entry?)

[ Parent ]
Excellent (0.00 / 0)
I'm watching the bubble chapter now.  Excellent.  Thanks.

Hey, how come no one ever mentions the S&L Crisis?


Seeing The Forest -- Who is our economy FOR, anyway? Twitter: dcjohnson

[ Parent ]
Most welcome. (0.00 / 0)
Would be pleased to know what you think of the course overall after you've had time to digest it.

The one area where I strongly disagree with Chris Martenson is on Social Security and the trust fund. He maintains that the trust fund is an accounting fiction, the money to pay back for the bonds isn't there and that at some point the government via one means or another will find a way to essentially default (or inflate away) against that debt.

I maintain that the trust fund is a matter of political will, and that as long as the political will is there to enforce the contract, the trust fund is just as safe as any other "full faith and credit" backed US Treasury security. Who's right? On that, only time will tell.

[ Parent ]
Scary stuff, just because the route from where we are to where we need to be looks impossible. (0.00 / 0)
I mean, rewriting corporate governance -- rewriting the corporation entirely -- what in our current politics is adequate to that task?  The corporation is a one to four hundred year old entity.  I agree that it needs to be reconstituted, but where are the levers that allow us to do that?

A non-corporate online tv station is the only venue I can think of that could build the turn in public opinion needed to do that.  I thought that back in 2004, and thought that current_tv would be that by now.  What is happening over there?

re (0.00 / 0)
But what happens after the stimulus? What do they think will drive our economy back to what they think of as normal?  Will it be renewed manufacturing of cars?  If we don't bring back the good-paying jobs, who will buy them?  Same for houses.  Same for TVs and appliances and furniture and jewelery and expensive shoes and all the rest. ... When a company replaces a worker with a machine, the company pockets the wages that would have gone to the worker and the worker is discarded.  But now we are learning that eventually enough workers are discarded that there is no one to purchase what those workers replaced by machines were making.  So the company and the economy lose, too.  This just doesn't work.


business look to squeeze money out their workers thinking that will help their profits

somehow they think that the people they "squeeze" have nothing to do with their company. How can they be so short-sighted? what they're doing is squeezing their customer base

who do they think will buy the stuff they make? the workers!

say, worker A is employed by company A but isn't among the company's customers. The customers are worker B and worker C. So company A squeezes worker A. Profits increase; management high-fives each other. But the squeezing mentality is widespread. Worker B and worker C get squeezed by their employers too. Now, company A doesn't do so good. The savings they got by squeezing worker A evaporate.

What do we do now? Stop squeezing.

The money goes somewhere, right? (4.00 / 1)
Company A, B,and C "squeeze" their workers, or outsource to a foreign nation where it is very clear that the workers in the factory are not customers of the corporations that employ them, and the money goes to the executives and marketing firms. Then those "squeezed" wait until that money trickles back down to them. If one is not keen on the "squeeze/trickle down" game, then they get an education and move into the Squeezing Class. Meanwhile, the corporations set about squeezing workers in other nations and supplying the American workers with the good life on the cheap (Live better. Pay less).

Ain't that American dream?

PS: This comment is virtually saturated in sarcasm

"It sounds wrong...
     ...but its right."

[ Parent ]
trickling down? (0.00 / 0)
that will decrease our profits!


[ Parent ]
Not if your corporation (4.00 / 1)
owns a string of convenience stores, or big box retail stores. That way, you can suck that money back into your coffers before it trickles too far. Not to mention that you can employ the folks that used to work in the factory, now at lower wages and with fewer benefits. Its the human side of "trickle down". Middle class America was built upon the earnings of the workers. Now, many have service sector jobs at lower pay and can only maintain their middle class lifestyle because the corporation has outsourced the exploitation of workers to other countries.

As one of my good friends in town says: "Is the trickle down economy supposed to smell like urine?"

"It sounds wrong...
     ...but its right."

[ Parent ]

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