The unemployment rate is disastrously high, and our government studiously dithers about doing nothing. The Republicans have cleverly diverted attention from the real problem onto the entirely chimerical problem of the federal "debt" at a time when people are saving like mad and only too happy to hold government bonds. The Democrats seem to have caved utterly to the forces of corporatism and finance, which got their bailouts and are now busily making war on labor. We (and other developed nations) are making precisely the same errors that we made during the Great Depression and in Japan's long-running recession, leaving the economy stalled so that the rich can widen their relative advantage.
It is as though Keynes and others who learned from economic history never existed. It is almost as though democracy doesn't exist either. Most of the problem is intellectual. This morning, a leading economist and conservative ideolog (John Taylor) lied through his teeth on NPR about how the Obama stimulus didn't work "at all", how corporations are not investing due to their fears of higher taxes, and other talking points of the Right. That such people are allowed to continue speaking as "experts" is unconscionable, however credentialed they are.
In this way, the intellectual waters are muddied, just as the tobacco industry, the fossil fuel industry, and the anti-evolution industries have muddied waters in their respective fields, freezing constructive public debate and action. What do conservative economists serve? The interests of wealth. At this moment, their lies serve variously to shield the powers of finance and corporate America from a reckoning for creating this enormous economic crisis in the first place, to forestall any constructive regulatory and fiscal solution to that crisis, (other than bailing out the banks, and the first dose of stimulus), and to entrench the power of wealth by floating the most self-serving "solutions" like lowering taxes and pulling saftey net programs from the poor, as well as, in effect, extending high unemployment for as long as possible.
For unemployment is a key indicator of our era. It is a barometer of the balance of power of capital vs labor. Low unemployment means that labor is hard to find and needs to be paid and treated well. High unemployment means the opposite- that employers can demand extraordinarily precise skill sets, provide no training, little security or benefits, all for low pay. Low unemployment is the most powerful promoter of worker's rights and middle class well-being, more than unions or legislative action.
Beware of economists who soft-pedel high unemployment as "natural" or "structural", as though the country were full of "lucky duckies" who prefer poverty to work, or losers who can't keep up with the jet setting workers of China. Whenever macro-economic times are good, people show that they can and want to work by working at high rates. Desire and training are not the issues.
It is more than ironic that the disaster caused by the financial sector as it oversold credit to the unworthy and leveraged itself to the stratosphere would result in yet greater power for those very financial and corporate malefactors. But there we are, and our only recourse is through the political system, which has also duly been taken over by money, speaking with the forked tongue of right wing economics.
The Federal Reserve has the official mandate of maintaining low unemployment as well as low inflation- somewhat conflicting goals. But who runs the Fed? Bankers run the Fed, and bankers have had little regard for the employment mandate. Now they have none. The Fed poured money into the banks to restore their solvency, and took on vast quantities of their questionable debt. But for employment? They have hardly lifted a finger, lowering interest rates in case any bank might deign to lend to a worthy cause. There has been no mention of truly active policies like targeting higher inflation rates and negative real interest, forcing banks to lend or lose their charters, or forcing banks to eat some of their bad mortgage loans, as well as processing them more efficiently, to get consumers back on their feet.
We have little to hope from any of these quarters. The sad part is that high unemployment and a widening gap between rich and poor doesn't even serve the rich very well. The economy as a whole will become less productive, skills will be lost, infrastructure will continue to deteriorate, public goods will be shortchanged, political and social relations will fray, we will fall behind China, the dollar will slowly lose its reserve currency status, and even the rich will find that their heretofore advanced base of operations in the US is not nearly as attractive as it once was. It is a scandal and a shame.
Incidentally, today's title comes from the Russian revolution, whose instigators recognized that the worse conditions became within Russia, the more fertile they were for revolution. The analogy to our epoch may be double-edged.
"...people are more likely to get married if they have the things that make a union strong: mutual respect, problem-solving skills and — especially — economic security."
- If we need jobs, we should make them.
- MMT economics gains a little ground.
- Mystical experiences in the azure hyperfield.
- Regulator saves the country $1 trillion.
- Does the euro need to split in two?
- Where do profits come from? Investment, government deficits, and consumer debt- an unstable combination.
- Economics quote of the week, from Nouriel Roubini:
"So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand."
- Graph of the week: Fed data on bank reserves. QE1,2 has been funnelled into banks, which sit on the money, doing no good to anyone, other than themselves by collecting interest courtesy of the Fed. The velocity of this money is zero. The Fed pays 0.25% on reserves, which adds up to real money on $2 trillion outstanding. This is quite apart from whatever Treasury bonds banks can buy paying 3%. Banks are well cared-for. Workers and homeowners.. not so much.