The idea that the financial markets are the essential force that drives economic growth and progress, has dominated political thinking for too long. The financial markets and their agents have dominated politics and the Congress over recent decades more than ever before. After all, it took several decades for the financial elite to accomplish the complete abandonment of the controls instituted to prohibit the financial market excesses that caused the Great Depression. We are at greater risk today of an even bigger crash than 1929.
The U.S. and world economies are stumbling on the precipice of part II of the “Great Recession” of 2008. The global integration of financial markets and institutions put the entire world at risk and none of it has any democratic foundation. It is all happening against the will of the people and in opposition to the public interest. The massive contraction of the middle class and the swelling of the ranks of the poor are now undeniable. The so called “recovery” has been all about the financial elites and the stock market. Corporations are awash in cash. Those who lost jobs that had a livable wage can now only find minimal-wage jobs and must work at least two to pay rent. The real economy falters and the financial markets are built on quicksand.
The Disappearing Real Economy
The economy is upside down because real economic activity – the production and exchange of goods and services needed by the people in their everyday lives – no longer drives the global economic system. The most powerful economic force in the world today consists of the actions of multinational corporations attempting to continually grow consumption by reducing the costs of growing production. International “free trade” is in effect the removal of production from the nation – outsourcing.
To minimize cost and maximize output, capital is moved to poor nations with the least labor costs and environmental controls. Economic “globalization” allows U.S. corporations to import cheap goods for our increasingly poor workers to buy at Wal-Mart with credit cards. That, of course, reduces the availability of production jobs here by exploiting the destitute elsewhere. While capital is easily mobile globally, labor is relatively immobile. The globalization of capital drives wages down so that U.S. citizens can only buy cheap imported goods.
Continuing down the ruinous path of the Wall Street financial elite is supported by a lot of political rationalization. The fact that work, pay, production, and consumption are what any real human economy is actually about, is simply ignored. On the one hand, we are told that capital must be free to find its “highest and best use.” That will enable the capitalists – falsely characterized as “the job creators” – to invest in new technology and production, thereby improving employment. Well, how has that worked out? The new technologies have mostly reduced the need for skilled labor in the U.S. The free international movement of capital – they call it “free trade” – has increased demand for unskilled cheap labor abroad. Who benefits? The wealthy investors in “globalization.” Who suffers? Workers everywhere suffer the loss of control over their lives and the inability to earn a living wage.
Feed the Rich, Starve the Poor
The myth that the super rich somehow need a tax break pervades the political discourse even though wealthy corporations and individuals pay less in taxes than ever. The delusion is that such public largess economically favoring the already rich would allow them to invest in the real economy. The “news” media – owned by the same mega-corporations that feed the super-rich – go along with that fiction even in the face of several decades of decline of American work, pay, production, and consumption.
All the while, the rich continue to get richer, paying less and less taxes, by controlling politics and indebting the nation. Both the U.S. Congress and the President are elected by having access to massive political funding by so-called “political action committees” (PACs). Legislation is actually written by the biggest financial lobbyists in the Congress – the lobbyists for the financial elite that is enriched by the “globalized” economy. Worldwide corporate theft, subsidized by the U.S. government, is a scam of unparalleled proportion.
Simply put, in a real economy it is income from employment that drives economic health. Employment provides individuals and families with incomes to buy the necessities and niceties of life. It is employment that produces goods and services people need. The income from employment allows consumption to drive production. Financial speculation among the super-rich has distorted the real economy by “financializing” it and ruined all that.
That is why the economy is so upside-down today. Financial speculation drives investment in cheap overseas production, leading to domestic poverty and declining ability to buy what is produced elsewhere. It is all driven by the greed of the financial elite, not by any national economic policy. Big investment banks’ speculating in abstract financial instruments – derivatives and the like – are allowed to create phantom money by depleting the real economy in the form of consumer and government debt.
In a real economy the Big Banks would be invested in actual productive activity. But because of outsourcing, underemployment, and low wages, workers cannot afford goods produced domestically as cheap goods from abroad flood the shelves of the big-box stores. At the same time, the propaganda of marketing and advertising encourage more and more consumption of less and less meaningful products. Low wages force reliance on consumer credit, increasing indebtedness to the corporations controlled by the financial elite. It is an upside-down economy.
Growing suppression of public education and critical thinking facilitates the manipulation of consumer behavior. People keep trying to buy whatever represents the imagery of the consumer culture that dominates their experience. “Affluenza” afflicts some of the few who experience new wealth. But the pervasive desire for the trappings of affluence – driven by pervasive marketing propaganda – drives consumer behavior, leaving little room for “free will” in economic behavior. Mass media images dominate consumer as well as political thought. Cultural images of “the good life” all involve increased unthinking consumption of corporate products.
Converging Crises and Catastrophic Collapse
In the present context, certain fundamental factors are at work. The vast accumulation of “phantom wealth” by the Big Banks via the “bailout” has encouraged further speculation and facilitated more economic concentration. The easy availability of cheap loans to corporations already awash in cash has not resulted in their investing in the domestic economy. All that cash and cheap credit is used for mergers and acquisitions, which further concentrate corporate wealth. A stock market booms while the main-street economy remains stagnant with vast numbers of workers unemployed or underemployed. Stock market growth is without foundation in the real economy. It has little basis in actual economic value, its growth is speculative, and is at increasing risk of collapse.
After the greatest financial heist of the public treasury ever, we must ask why such vast accumulated wealth has no benefit to the real economy. Overextended consumers can no longer rely on home equity and credit cards to make up for those decades of stagnant to regressive wages. It becomes clear that another few hundred million more dollars in the coffers of billionaires will not be invested in domestic production for the suppressed consumer demand for necessities that results from stagnant domestic employment and over-indebtedness.
It is not as if this is all happening in the abstract. Real world allocation of capital has planetary consequences. The distortions of mass production induced by extractive capital are global in scope. With a world population of over seven billion people and the drive to emulate Western patterns of consumption, the carrying capacity of the planet’s ecologies is already exceeded. Whatever one’s interpretation of the world’s economic system and imagined alternatives, the convergence of overproduction, consumer culture, overpopulation, looming crises of food production, resource wars, and climate chaos, all foreshadow a catastrophic collapse of existing economic and social systems. Only a massive human effort to reorganize the way we live on this planet can avoid human tragedy on a scale as yet mostly unimagined.