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The Biggest Risk to the Economy in 2012, and What’s the Economy For Anyway?

robertreich:

Treasury Secretary Tim Geithner, speaking at the World Economic Forum in Davos a few days ago, said the “critical risks” facing the American economy this year were a worsening of Europe’s chronic sovereign debt crisis and a rise in tensions with Iran that could stoke global oil prices.

What about jobs and wages here at home?

As the Commerce Department reported Friday, the U.S. economy grew 2.8 percent between October and December – the fastest pace in 18 months and the first time growth exceeded 2 percent all year. Many bigger American companies have been reporting strong profits in recent months. GE and Lockheed Martin closed the year with record order backlogs.

Yet the percent of working-age Americans in jobs isn’t much different than what it was three years ago. Yes, America now produces more than it did when the recession began. But it does so with 6 million fewer workers.

Average after-tax incomes adjusted for inflation are moving up a bit. (They increased at an annual rate of .8 percent in the last three months of 2011 after falling 1.9 percent in prior three-month period. For all of 2011, incomes fell .1 percent.)

But beware averages. Shaquille O’Neal and I have an average height of six feet. Exclude Mitt Romney’s $20 million last year — along with everyone else securely in the top 1 percent — and the incomes of most Americans are continuing to slip.

Consumer spending picked up slightly in the fourth quarter mainly because consumers drew down their savings. Obviously, this can’t last.

Meanwhile, government is spending less on schools, roads, bridges, parks, defense, and social services. Government spending at all levels dropped at an annual rate of 4.6 percent in the last quarter – and that’s likely to continue.

Some economists worry this drop is a drag on the economy. But it also means fewer public goods available to all Americans regardless of income.

Congress still hasn’t decided whether to renew the temporary payroll tax cut and extend unemployment benefits past February. If it doesn’t, expect another 1 percent slice off GDP growth this year.

Tim Geithner is surely correct that the European debt crisis and Iran pose risks to the American economy in 2012. But they aren’t the biggest risk. The biggest risk is right here at home – that most Americans will continue to languish.

All of which raises a basic question: Who or what is the economy for? Surely not just for a few at the top, and not just big corporations and their CEOs. Nor can the success of the economy be measured by how fast the GDP is growing, or how high the Dow Jones Industrial Average is rising, or whether average incomes are turning upward.

The crisis of American capitalism marks the triumph of consumers and investors over workers and citizens. And since most of us occupy all four roles – even though the lion’s share of consuming and investing is done by the wealthy – the real crisis centers on the increasing efficiency by which all of us as consumers and investors can get great deals, and our declining capacity to be heard as workers and citizens.

Modern technologies allow us to shop in real time, often worldwide, for the lowest prices, highest quality, and best returns. Through the Internet and advanced software we can now get relevant information instantaneously, compare deals, and move our money at the speed of electronic impulses. We can buy goods over the Internet that are delivered right to our homes. Never before in history have consumers and investors been so empowered.

Yet these great deals increasingly come at the expense of our own and our compatriots’ jobs and wages, and widening inequality. The goods we want or the returns we seek can often be produced more efficiently elsewhere around the world by companies offering lower pay, fewer benefits, and inferior working conditions.

They also come at the expense of our Main Streets – the hubs of our communities – when we get the great deals through the Internet or at big-box retailers that scan the world for great deals on our behalf.

Some great deals have devastating environmental consequences. Technology allows us to efficiently buy low-priced items from poor nations with scant environmental standards, sometimes made in factories that spill toxic chemicals into water supplies or pollutants into the air. We shop for great deals in cars that spew carbon into the air and for airline tickets in jet planes that do even worse.

Other great deals offend common decency. We may get a great price or high return because a producer has cut costs by hiring children in South Asia or Africa who work twelve hours a day, seven days a week. Or by subjecting people to death-defying working conditions.

As workers or as citizens most of us would not intentionally choose these outcomes but as seekers after great deals we are indirectly responsible for them. Companies know that if they fail to offer us the best deals we will take our money elsewhere – which we can do with ever-greater speed and efficiency.

The best means of balancing the demands of consumers and investors against those of workers and citizens has been through democratic institutions that shape and constrain markets.

Laws and rules offer some protection for jobs and wages, communities, and the environment. Although such rules are likely to be costly to us as consumers and investors because they stand in the way of the very best deals, they are intended to approximate what we as members of a society are willing to sacrifice for these other values.

But technologies for getting great deals are outpacing the capacities of democratic institutions to counterbalance them. For one thing, national rules intended to protect workers, communities, and the environment typically extend only to a nation’s borders. Yet technologies for getting great deals enable buyers and investors to transcend borders with increasing ease, at the same time making it harder for nations to monitor or regulate such transactions.

For another, goals other than the best deals are less easily achieved within the confines of a single nation. The most obvious example is the environment, whose fragility is worldwide. In addition, corporations now routinely threaten to move jobs and businesses away from places that impose higher costs on them – and therefore, indirectly, on their consumers and investors – to more “business friendly” jurisdictions. The Internet and software have made companies sufficiently nimble to render such threats credible.

But the biggest problem is that corporate money is undermining democratic institutions in the name of better deals for consumers and investors. Campaign contributions, fleets of well-paid corporate lobbyists, and corporate-financed PR campaigns about public issues are overwhelming the capacities of Congress, state legislatures, regulatory agencies, and the courts to reflect the values of workers and citizens.

As a result, consumers and investors are doing increasingly well but job insecurity is on the rise, inequality is widening, communities are becoming less stable, and climate change is worsening. None of this is sustainable over the long term.

Blame global finance and worldwide corporations all you want. But save some blame for the insatiable consumers and investors inhabiting almost every one of us, who are entirely complicit. And blame our inability as workers and citizens to reclaim our democracy.

Robert, 

There are some salient points to your argument here, a couple of which, however, I think you should elaborate on. Perhaps you’ll afford me the room to proffer a couple of ideas which strike me as complications to your assertion, though:

I’ll begin with your remarks RE: the economy:

 Who or what is the economy for? […] 

The crisis of American capitalism marks the triumph of consumers and investors over workers and citizens

I’ll concede to your rhetorical flourish here which portrays “the economy” as a thing with a purpose. What a comprehensive understanding of the economy allows for, you must know, is the greater ability to control and direct it. 

However, in whose interest does studying the economy serve? If we were to examine economic discourse, we would find a few things: observations and theories about the flow of cash, where and to whom it goes, how, and why; we would find observations and theories regarding the motives, intelligibility, desires, concerns, and impulses of buyers and sellers; we would find attempts, in almost all cases, to account mathematically and with formulas how all of these factors may be predicted and understood. But in service to whom? 

Surely an honest, cursory glance will reveal to you that the consumer, the broadest and most common of all living economic agents, is not generally informed about any of these models or theories. That should be your first cue as to the democratic inclinations of Capitalism. What is most being presented to us is, as you point out, the unsurprising: offers: cheap buys, deals, savings, from producers—that is, the ones who profit. Our “understanding” of the market, the most common economic discourse that we are familiar with, is the one that enriches and serves the interest of the seller. If it were the consumers in power, the result would be obvious: we would be the ones dictating the terms of operation.

If you agree to this, then surely the “crisis of American capitalism” does not in fact mark the triumph of “consumers and investors over workers and citizens”. It must be understood, first of all, that consumers and investors, and workers and citizens, do not exist as a neat dichotomous pair, which you in fact concede at the end:

But save some blame for the insatiable consumers and investors inhabiting almost every one of us, who are entirely complicit. And blame our inability as workers and citizens to reclaim our democracy.

So you assert that we are all functioning agents of this economic dominion, because that is what it is: a domain where various groups and agents dominate another.  We know this because we know, from plain observation, that power is not divided equally among us. However, what that also makes clear, is that there is a problem with your final assertion.

In law, it is recognized that those who are in positions of prostration and submission to a higher power, or source of authority—as in employees under employers, children under parents, students under teachers, young partners in the cases of statutory rape—are lacking in the capacity to resist-to or agree-with their counterpart in the same degree of control and responsibility as they are. That is why, for instance, along the chain of command, superiors are generally responsible for the behaviour of those who execute their decisions and possibly make mistakes. 

It’s clear now that there is an exception to that principle in functioning capitalist economics. If it weren’t the exception, where the power and responsibility over the workers exists in the hands of the workers, we would be looking instead at Socialism. So we see that the power is not in fact in the hands of consumers, and neither therefore should be the blame. The only remaining justification for this position, which you have not (thankfully) mentioned, is the presupposition that all economic agents are perfectly rational agents, who make decisions with perfect knowledge, which was long a position of prominent economists (including Friedman), an idea that is now, thankfully, coming to be understood as almost entirely false. 

Your remaining position is now thus: 

But save some blame for the insatiable consumers and investors inhabiting almost every one of us, who are entirely complicit. And blame our inability as workers and citizens to reclaim our democracy.

After what I’ve mentioned, refuting this point becomes a bit clearer: that our inability as workers to reclaim [y]our democracy is largely out of our hands. 

[Y]Our inability as citizens, however, to reclaim [y]our democracy is entirely different matter. This position is complicated because it doesn’t account for a couple of things:

• Citizens are not only consumers

• Some of those who aren’t, in the operative sense, consumers are extremely powerful  

• Law makers, those who make legislation, must do so—virtually as a prerequisite of operating politically in the USA—in the service of Capitalism

• The representatives and beneficiaries, including those who we know wield a certain amount of power over the consumer, of Capitalism, are by extension, the ones who legislation and law are crafted in service of

Most of these points, if you’re going to be honest, are already tacit in what you’ve said; I’ve merely pulled them from the depths of what you imply. 

The final point should be very obvious, then: 

As democratic agents, workers and citizens are comparatively powerless to control, like we are the capitalistic agents, the legislative ones, who are in service not always to that capitalist power, but to that capitalist operative principle.

A few other, terse words:

As Occupy Wall Street has shown, there is very little acknowledgment of either democratic demands, or of citizens’ actual power, even when exercised, demonstrated, and otherwise made as well-known as possible. They are widely dismissed and supressed in their attempts to effect change. 

Even when the democratic agents attempt to use their voice as one, they’re met with the military and riot police—an interesting contradiction of a country which ostensibly enshrines in its populace the “right to bare arms” for purposes of resisting tyranny and oppression. Democratic agents are not even able to assemble in public spaces, or maintain libraries, or sit peacefully without facing violent suppression of their attempts to manifest their will. Never have they yet attempted to wield as one the 100 or so million personal firearms which exist in the United States—even though they have the “right” to. The reason they haven’t, by and large, must be because they don’t believe in the value of violence in society. Fancy that. 

So even in America, where there is ostensibly the right to meet Statist force with Constitutionally-enshrined democratic force, the democratic agents are unable to effect their goals. Whatever blame that may previously have been leveled on citizens for remaining complacent is now entirely moot: they no longer are complacent, they are shouting: and they are beaten, pepper-sprayed, shot at, ignored, and have their voices suppressed by exclusion of the press, selective press coverage, and legislative bias which, as in the example of SOPA, PIPA, and in Europe, ACTA, continues to serve the Capitalist operative principle, to the detriment of 99% of America.