Monday, February 22, 2010

A Country of Serfs

CounterPunch, former Reagan administration economic advisor Paul Craig Roberts on where the economy is really headed:

The problems of the American economy are too great to be reached by traditional policies. Large numbers of middle class American jobs have been moved offshore: manufacturing, industrial and professional service jobs. When the jobs are moved offshore, consumer incomes and U.S. GDP go with them. So many jobs have been moved abroad that there has been no growth in U.S. real incomes in the 21st century, except for the incomes of the super rich who collect multi-million dollar bonuses for moving U.S. jobs offshore.

Without growth in consumer incomes, the economy can go nowhere. Washington policymakers substituted debt growth for income growth. Instead of growing richer, consumers grew more indebted. Federal Reserve chairman Alan Greenspan accomplished this with his low interest rate policy, which drove up housing prices, producing home equity that consumers could tap and spend by refinancing their homes.

Unable to maintain their accustomed living standards with income alone, Americans spent their equity in their homes and ran up credit card debts, maxing out credit cards in anticipation that rising asset prices would cover the debts. When the bubble burst, the debts strangled consumer demand, and the economy died.


Roberts efficiently explains why both Democratic and Republican ideas about how to get the economy moving again are doomed to failure: the two parties, more or less, aim to restore the economic situation that existed before the Great Recession began. For Republicans, it's about returning to "true conservatism," or the principles of Reagan, whatever; for Democrats, it's a bit more nuanced, but amounts to the same thing, a kind of globalism that ensures a race to the bottom in terms of wages. Either way, now that debt-as-stopgap has suffered its inevitable collapse, US business faces a domestic consumer market that cannot buy its products.

As long as job prospects for most Americans top out with fast food and retail management, our economy will be sluggish at best, and positively third world at worst. Nothing that either party is recommending, in terms of economic stimulation or job creation, will change this. Nobody in the political class appears to understand that consumer demand plays an extraordinarily important role in economic growth, which is weird because such a concept is self-evident. Both parties are too caught up in their supply-side mythology to see the obvious: it is good economic policy to ensure that rank-and-file Americans have enough money to pay their bills and send their kids to college.

In short, until the US political establishment, on both sides of the aisle, starts to consider the fate of the US worker as part of the overall economic picture, rather than as rhetoric, we're fucked.