Wow! What’s the deal? Talk about crazy-making. Take a look at Milton Friedman, Naomi Klein, Ravi Batra, Ha-Joon Chang, and all the media pundits who supposedly know economics. Friedman was quoted as saying, “Look at results not intention.” Evidently, that was a rule for others and not for him. I am going to explain economics in a clear and not necessarily all encompassing way. My emphasis is on what really happens
If you look at the results of Neo-Liberal economics – Friedman’s baby – the track record for the masses is lousy. Lots of dictators and their handymen got quite rich. The policies called for liberalization of trade (i.e., no tariffs, free movement of money from outside the country, low or no taxation of business, slow down & cripple unions), deregulation, and low wages.
Now, the United States and most, if not all, of the currently successful economies relied on governmental regulation, tariffs to protect fledgling industries, state support of favored industries, and fair wages tied to productivity. These factors were deemed necessary for the economy to grow and for prosperity to encompass most of us.
In other words, not trickle down but boom upward. The basic notion was that a prosperous working population would fuel demand and increase productivity. The U. S. middle class was the greatest economic engine in history. As the economy reached points where it could grow on its own, supports could be withdrawn for some industries and focused on development of newer technologies. Eminently sensible wouldn’t you say?
Eminently successful also – look at Korea, Japan, the U. S. prior to 1980 to name a few. Since 1980, free market folks have sold much of the U. S. on the ideas of supply side economics. The problem is that in terms of results, the numbers for most of us are terrible and the rich get richer.
Productivity, a supply item, has increased steadily since the ‘80s. In other words, our workforce is more productive. Wonderful. Wages, a demand item, have stagnated and even declined in real terms. When that happens, supply outstrips demand and that is not good. So, the Fed and big businesses encourage borrowing, a demand item. When you and I borrow, we can buy more of the excess supply.
Borrowing increases and we keep creating debt. Where does all the money that we borrowed go? It goes into the pockets of the guys and gals that own the supply. In fact, today, they have so much money that they just don’t know what to do with it. They don’t increase wages for the working folks but they do for the CEOs. Those folks also don’t know what to do with all that money, so they create hedge funds and they speculate in commodities markets like oil, gas, corn, etc with much of that money.
Speculation drives up prices. Prices of oil, gas, corn, rice, etc. The Fed lowers interest rates so we can borrow more. The loans are bundled to use as another commodity. We now have amassed tremendous individual and government debt. Foreign countries own us, the dollar is worth less, we don’t have jobs, our wages are still stagnating.
So, there you have it. A rather over-simplified version of conservative, neo-liberal, free market economics. While it may not be precise, it is clear. The shorter version is: Support your Local Capitalist. Do you really believe that all corporate managers and CEOs are trustworthy? Is anyone really trustworthy when they have no accountability, no requirements for transparency, or need to be responsive to authority? Ha-Joon Chang, Naomi Klein, and Ravi Batra can give you more details about what really happens with so-called free markets.
Traditional economics is knowledgeable and respectful of the constraints of supply and demand in addition to an awareness of the problems inherent in unbridled human activity. Even Adam Smith extolled compassion and empathy.