“Economic Analysis, Elitism or Ignorance?”
by
Mary Lynn Cramer, BA, MA, MSW, LICSW

Every economy is based on the production of real material goods. When there are problems—economic crises-- in production and profitability, then the economy requires a redistribution of wealth to make production profitable again. If redistribution is successful, the economy takes off at even higher rates of production, productivity and profitability. If not successful, we experience rampant manipulation and inflation of the price of that paper (currency, stocks, etc.), which should represent real production and distribution of material capital goods, in a desperate attempt to force sufficient redistribution and get profitable production going again. Hence, we’ve seen savings and loan failures, “bubbles” (i.e. value on paper that is not based on real production) as in “.com” companies, along with lowering of interest rates (that wipe out wealth of workers’ savings; but make borrowing cheaper and, therefore, redistribute wealth to larger corporations); and more recently the sub-prime scandal and crash and bail out of the large financial institutions (again, by printing paper), in lieu of increasing (but in hope of increasing) real material production. I am not talking about increasing the production of real stuff workers/consumers need to consume to survive and maintain a quality standard of living. That is the smaller, but necessary, part of the economy. I am talking about production in mining, manufacturing, durable goods; industrial equipment, materials and technology. As you know these sectors of production have had declining production and wide-spread shut downs in this country since the beginning of the 1970’s. Neither the standard of living of working people nor the rates of profit of largest corporations have recovered levels of the late 1960’s. New Exception: the invasion of Iraq and boom in profits of oil and military contractors while the economy in general experiences increased demand, unemployment and inflation without economic growth (“stagflation”). Economists used to be more honest about war being just an extension of economic competition when the traditional mechanisms of bankruptcy and unemployment that historically provided the cheap labor and cheap industrial equipment, technology and infrastructure for “purchase” by the larger surviving corporations to start increasing production again at even higher rates of profit and productivity than before the recession/depression.

If you read the Wall Street Journal or the “Business Section” of the NYT, you have seen the reports of past decades where the ongoing decline in U.S. economic growth began in the industrial manufacturing sectors, followed by lower “consumer” demand due to lay-offs and declining personal incomes. Unfortunately, the economists today have given up on understanding what causes “booms and busts” in capitalist production. Their contradictory theoretical models don’t work any better with “econometrics” than they did in analog textbooks. So, more recently they have turned to psychology (“consumer confidence”) and blaming the bad guys at the Fed, or the crooks (“greed” and “immorality”) in the financial institutions, or the stupidity of otherwise well-intentioned capitalists. However, all the interesting details about personalities, bad investments, and misspending, etc., do not provide a reasonable framework within which to understand these bogus dealings and the failed attempts to promote real economic growth and production.

As John Maynard Keynes said to President F.D. Roosevelt, inflation is a much safer tool for redistributing wealth under capitalism than directly cutting workers wages. In the latter case, the workers will organize against the employers. With inflation, they don’t know who to blame. Ultimately, it was World War II that “pulled us out of the depression,” and the US supported attack on Pearl Harbor (now well documented), provided the excuse for overcoming “isolationist” opposition to that war.

War has always been the most efficient instrument available for redistribution of capital/labor/resources/infrastructure. Destroy the economy of the invaded countries; privatize their infrastructure, take over their resources and cheapened labor, while mandating a redistribution of wealth to military contractors and related corporate powers at home. The plan is underway again. Whether it will be successful this time remains to be seen. We used to say that the global crises in our capitalist form of production and distribution would eventually have to be solved by a form of democratically regulated socialism, or a form of fascism. We used to say that…not expecting we’d see the historical solution played out in our country, in our lifetime. The process has accelerated, and many think the choice has been made for us. The tragedy is that most people prefer to find someone to blame rather than put the effort into understanding what is behind these repeated (and ever larger) economic crises. And who can blame them when the economists discuss the economy in abstract and psychological terms, while telling us it is too “complicated” for them, let alone the common people, to understand. There still are a few who remind us that the stock market is not the economy. Changes in economic production pre-date those changes as reflected in the stock market. But it seems, again, that gossiping about the paper games played by the rich is more fun, or easier, than the hard work of examining the material reality those games are based on.