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November 10, 2005

Who Is Our Economy For, Anyway?

-- by Dave Johnson

Regular Seeing the Forest readers know that we regularly ask the question, "Who is our economy for, anyway?" Today several bloggers are asking this question in different ways. In an earlier post here, John Emerson wrote,

DeLong said once that the Clinton free trade policy was Part One of a two part policy. Part Two would have been compensation and retraining for displaced workers, but it never happened. ... Basically Clinton tried to get his bipartisan program through with Republican votes while defying the Democrats in Congress, and then was shocked to find that the Republicans refused to support the Democratic part of the package.
Kevin Drum at Washington Monthly and Atrios are talking about trade. Keven wrote,

... [read the post] puts a different spin on the standard thesis that free trade agreements are good for growth, doesn't it? If "growth" mean GDP growth, it's probably true. But if "growth" means growth in median wages, as I think it should, then it might not be.
and later,
I didn't intend the previous post to imply that trade agreements are bad things. I don't think they are.

Rather, I just wanted to point out that they have their downsides as well as their upsides.

[. . .] The point isn't that trade is bad per se, the point is that politicians frequently make promises to help out those who are hurt by trade agreements, but then quickly lose interest in those promises once the agreement passes.

and even later,
...not only do workers who lose their jobs to a plant closure suffer a permanent income decline, but 20 years later the children of these families suffered lower incomes too. Surely those of us who benefit from free trade and an information age economy ought to be willing to forego a small part of that benefit in order to avoid the kind of multi-generational poverty that's caused by the things that benefit us in the first place?
Atrios wrote,
Now we're in this world where people just scream "free trade good!" Well, it isn't good for everyone. There are winners and losers, and all basic trade theory says is that enough extra income is created so that the winners could, in theory, more than compensate the losers for what they lost. But that's "class warfare" and "socialist redistribution" so we don't do that.

It's completely in the self-interest of a nontrivial part of the population to oppose basic free trade legislation. Economists are often loathe to embrace a particular social welfare function, but too many fall prey to embracing GDP as somehow being a metric which is value neutral. In fact all it does is obscure all the things about which we could make a value judgment. A useful measure of something, but certainly not a value-free measure of the nation's economic wellbeing. The income distribution is still there, even if we close our eyes and pretend it isn't.

Then, later he gets to what I think is the most important point,
Is a policy which makes 1% of the population better off but 99% worse off a better one strictly because it raises the average? What about 20/80? What about 50/50, when it's the less well off people being made worse off and the more well off people being made better off? People can certainly have different opinions about these things, but what people shouldn't do is think that by focusing solely on real per capita GDP they're not making a subjective judgment. A policy change which impacts GDP also is likely to have an impact on the income distribution and just because you manage to avoid the latter issue doesn't mean that the issue isn't there. All you're doing is saying "GDP trumps all other considerations." If that's what you believe, fine, but it's a rather odd thing to believe. [emphasis added]
At TPM Cafe there are lots of posts on the subject of trade. Jeff Faux writes,
The opening up of the US economy to unregulated markets has allowed the corporate investor class to escape the restrictions of the New Deal social contract. The threat and reality of off-shoring production is relentlessly undercutting the bargaining position of labor (not just labor unions but most people who must work for a living). The effect is similar for rich countries and poor ones. A dozen years after NAFTA, for example, wages have dramatically fallen behind productivity in Mexico as well as Canada and the US.

[. . .] But even if you accept all of the conventional theoretical arguments for unregulated trade, the benefits are exceedingly modest.

Some of the posts there try to say that cheaper goods from China balances our loss of jobs. But I think the lower price is actually from a form of deferred maintenance. I mean, if we export manufacturing we're exporting our future ability to manufacture because our manufacturing infrastructure deteriorates while China's modernizes, and we lose our ability to compete in the world. I think our trade deficit reflects this.

David Sirota sees another problem with the "lower prices" arguments,

As Robert Greenwald highlights in his new movie "Wal-Mart: The High Cost of Low Price" - there are all sorts of hidden costs in those great low-prices that we venerate as the rationale for corporate-written free trade policy. For instance, as I note in my upcoming book, the best way to see that those low prices aren't all that they seem is to look at whether wages under free trade policies are actually outstripping those supposedly "low" prices. As Gene's colleagues at the Center for American Progress pointed out in 2004, wages are, in fact, not keeping up with inflation. And that trend has continued into 2005. In other words, the supposed gains from "low" prices are outstripped by the losses this trade policy incurs to workers' wages.

... Put another way, the low prices Wal-Mart is able to provide on goods under free trade policies are not enough to offset the low wages workers are now making under these free trade policies.

MaxSpeak says,
Trade, on the other hand, is fully predictable in its impacts on the US: it leads to losses for the worst-positioned and benefits for the already well-off.
Nathan Newman writes,
...what's striking is that advocates for trade deals accuse critics of being against "free trade"-- yet the deals they advocate are all about accepting child slavery and denial of freedom by workers to form unions as acceptable parts of the global economy.

It the critics of these deals -- who support trade but demand that basic standards of freedom for workers be incorporated into the trade regime -- who truly support "free trade." It is actually Orwellian that advocates for unrestricted trade with China-- where workers are thrown in prison if they advocate unionizations -- can appropriate the use of the term "freedom" for their position.

What exactly is wrong with demanding that if China wants to sell goods to the US, they must extend accepted ILO labor rights, such as the freedom to form a union, to their workers?

In The Corporate Ethic, Ian Welsh at BOPNews approaches the same question from the direction of corporate responsibility:
Plain Dave [a commenter previously quoted in the post] is basically asserting that businesses operate like psychopaths who will do whatever is in their material interest no matter what the ethical implications.

Now, if you know a person is a psychopath, you wait for them to commit a crime, then you lock them up so they can't hurt anyone else ever again.

If Plain Dave is right, businesses are psychopaths and the moral code of executives is one that requires them to operate as psychopaths. Let's assume Dave is right.

. . . As a citizen you have a right to demand that companies that operate unethically are either shut down or brought to heel. Corporations are created by government and a government can dissolve any company it wants simply by revoking its charter - the right is in every incorporation bill.

But I'm willing to suggest something else - not everyone in ost companies is a psychopath, so let's just arrest and try those who act like psychopaths. The executives who made this decision or other ethically dubious ones (like the executives who make cost benefit analyses that the suits from the relatives of people killed by known defects cost less than the cost of fixing the defects.)

. . .I'm real tired of people who seem to think that companies should act unethically if it will make them more money. Real, real tired. [emphasis added]

I was going to write something on this, but came across one of my older Who is our economy for, anyway? posts, and want to just repost most of it here as my own contribution to the discussion:
It's not just that we're shipping more and more of our jobs to other countries, and we are, but it looks as though the world really may be reaching the point where we need fewer people working to get done the things we need to get done. You hear about "high productivity." Well, that is what "high productivity" MEANS. Even China is losing manufacturing jobs.

And the answer isn't retraining people to move into higher-level jobs. When I moved to Silicon Valley in 1980, everyone was talking about retraining auto workers for tech jobs. Well, now in Silicon Valley almost the only jobs in the paper are for auto mechanics.

Wealth is concentrating as never before. The rich aren't just getting richer and richer anymore -- the concentration is way beyond that. And the opportunity avenues the rest of us expect from the social contract that tolerates such wealth are not expanding. If you look around at all the supposed prosperity -- the big houses, the SUVs, the electronic toys, nice clothes, etc. -- you should also understand what is supporting it: Massive debt. Massive, massive debt on a scale never before seen. Everyone thinks they are rich now, and are doing what it takes to live that way. It is the cultural expectation now, and I think this illusion is a way of avoiding accepting the concentration that is occurring and accepting that we are working harder, but receiving less and less of the benefits. The only way for most of us to achieve that lifestyle is to refinance our houses, run up our credit cards, and elect leaders who encourage all of that while running the country the same way. Massive, massive debt. Everywhere. A bankrupt philosophy surely expressing itself one day with real-world bankruptcy.

If something is unsustainable, it won't be sustained. We are all frantically trying to find new ways to buy time. Perhaps if we can sustain things another month we will turn the corner. Perhaps we'll get a raise in time. Perhaps tax revenue will increase in time. Perhaps the stock market will go back to where it was and our pensions will be there for us. Perhaps we'll win the lottery. But what is happening is that the money is draining upwards. As we work longer hours, and more members of our families enter the job market just to cover the house payments, the insurance payments, the childcare and the increasing cable-TV and credit card bills, the banker who collects our interest payments, and the owners and executives of the insurance companies are gobbling up more and more of the world's resources to "own" for themselves. Our government is even preparing to sell off our national parks -- another transfer of "ownership" of OUR resources to the priviledged FEW.

In the end, a very basic question will need to be addressed. Who is our economy FOR, anyway? This is a very dangerous question, and just asking it leads to places that many of us have not gone in our thinking, and many of us certainly don't want the rest of us to go. And, of course, the corollary question: Who is our GOVERNMENT for? Is it US, after all, or not?

You learned in grade school that "we" decide the laws and policies of OUR government. WE are our government -- that's what our government IS: US, grouping together to decide things. "Of the people, by the people and FOR the people." We even decide who "owns" what, and we do so because it supposedly benefits all of us. For example, no one "owns" the air or the oceans or the state capital building or the right to cut off your arm.

In many other countries now, (and in America until just a few years ago), there are some limits on how much of the public resources (money) one person can acquire. High taxes are imposed after a person has brought in some large amount for him or herself. Then, much of the rest is put to use for the benefit of the overall public. If a person has hit the jackpot and is bringing in, say, $10 million a year, anything beyond that is taxed at a high rate. Everyone benefits from this. The jackpot winner is bringing in a huge sum, but the public is also benefiting from having made the collective decisions that set up the system. In Europe the workday is shorter, they get 6 weeks average vacation per year, their health care is covered, AND they get generous pensions when they retire. This is because they have set up a system that works for THEM. But in America, we are degenerating into a form of feudalism, where the super-rich rule over the rest of us, to their benefit.

"Ownership" is only a concept. It is nothing more than a right that is granted by government -- US -- and only for the benefit of US. Corporations are not entities created by nature, they are structures created and defined by laws, and defined by law, and supposedly for the benefit of the public. Why else would we have passed the laws that set them up?

Remember, feudal lords "owned" the right to sleep with any bride on her wedding night.

"... a problem whose queasy horrors will eventually be made world-wide by the sophistication of machines. The problem is this: How to love people who have no use?

In time, almost all men and women will become worthless as producers of goods, food, services, and more machines, as sources of practical ideas in the areas of economics, engineering and probably medicine too. So, if we can't find reasons and methods for treasuring human beings because they are human beings, then we might as well, as so often has been suggested, rub them out."

- Kilgore Trout, in Kurt Vonnegut's God Bless You, Mr. Rosewater

Posted by Dave Johnson at November 10, 2005 3:32 PM

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Comments

There's one thing that's being left out of this equation. National security. If we allow our ability to manufacture to deteriorate as badly as we're threatening to do, what happens when, for example, China suddenly decides not to sell things to us any more? Could happen when we become overextended enough so our credit is too bad. Or to collect on all that debt we're running up? Or to go to war with us and we're no longer able to manufacture for ourselves what we need to fight a war? Don't forget -- armies even need stuff like socks and shoes and shirts, and I'm not sure we could make those things ourselves right now. Setting those simple things aside, we should start investigating exactly which countries are manufacturing major components of our military equipment.

Posted by: MJ at November 10, 2005 4:24 PM

Our economy is certainly not for those who create the wealth: the workers. It is primarily aimed at promoting the wealth, power, and prestige of the wealthy elite, the top 1% of earners. To maintain the enormous and ever-widening gap between the rich and the poor, the economy is used to throw just enough scraps from their table to keep the yearning and oppressed masses from revolting and bringing their entire stupid economy to its knees.

dave

Posted by: dave at November 10, 2005 6:51 PM

Democrats and Iranians are very similar in that they defy history. Iranians deny the holocaust ever occurred. Democrats deny 9-11 ever happened.

Maybe that's why Democrats want to protect terrorists. They have more in common with Muslims than they have with Americans.

Posted by: clinton [TypeKey Profile Page] at December 25, 2006 1:33 PM

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