Power gets what it wants. This is the reason that Wall Street – the cause of the crisis- is booming; but working people are facing double-digit unemployment, hour cuts, increased work load on the job, less resources to work with, raising costs on benefits, cuts to public services and an all-around increase of vulnerability to our situation worsening. While the banking executives get multi-million dollar bonuses, we’re told we’re “lucky to have a job” and that we should “take more cuts” to “save the jobs of our co-workers”. The stock market gains while more and more people are thrown out of work. Something is wrong with this picture. This article will try to break down some of the key economic processes and functions to consider in working towards solving this crisis for working people; but in doing so it will necessarily have to simplify things a bit in an attempt to touch on some of the larger ideas.
It must be how the economy works, right?
Ok, let’s look at it economically. We’re always told that the unemployment rate will go down when the economy grows. Well, that’s not exactly happening right now, is it? But we’ll talk about that when we get to the quarterly productivity figures. First, let’s examine why that’s argued. One of the key equations in measuring economic growth is the aggregate expenditure equation. Basically, it’s just a total measure of money put into the economy to request goods and services. This money is spent on all the goods and services provided in an economy, also known as, Gross Domestic Product (GDP for short). Here’s the basic form of the equation:
Gross Domestic Product = Consumption + Investment + Government Spending + Net Export
But what does this mean? Why does it matter? And what does this tell us about what needs to happen in the economy? Well, if consumption, investment, government spending and exports are what’s going to drive the economy, then let’s take a look at each one.
Less Jobs + Less Pay= Less Consumption… and Vice Versa
First, let’s look at “C”, Consumption: people are loosing their jobs, loosing hours at work, getting cuts in pay. So overall, less people have less money to spend and this is increasing each day with each layoff and each cut. All of these measures are not only bad in themselves; but they contribute to things getting worse and worse. The more these trends continue, the worse things will get. However, we can’t ignore consumption because some economists say that it amounts for 70% of the economy. So one key to fixing the economy is to remember that there needs to be more money at the disposal of working people to spend. The rich can’t consume their way out of the recession because luxury automobiles, mansions, yachts and the like are too small a sector of the economy to really drive the economy. We need the money spent on a wide diversity of items from a wide range of people to really drive the economy. Besides most of the money of the rich is tied up investments not consumption. Afterall, millionaires can only spend so much before even they don’t know what to spend it on.
(most likely to spend on) needs à wants à luxuries (least likely to spend on)
We might think of consumption on a continuum of: needsà wantsà luxuries. During a bad economy, wants and luxuries are most likely to get cut first from people’s budgets followed needs. If someone gets a raise or a gets a job when they were formerly unemployed, they’re more likely to spend money on needs first, then wants, then luxuries. But for people making six-figure salaries (unless they have a lot of kids or family members depending on them), they don’t need to worry about fulfilling their needs or wants, so they’re in the realm of luxuries and less likely to spend. So most effective and strategic benefit to the economy would be to employ as many people as possible who are unemployed (since they’ll immediately spend on needs and some wants) and then focus on getting higher wages and more benefits for everyone making under six-figures starting with the lowest wage workers and going up (since that’ll give folks the chance meet their needs and basic wants while increasing consumption). So, we’ll have to conclude that only working people will spend a high enough percentage of their income on consumption items and will spend it on a diverse enough types of products to support enough sectors of the economy to really contribute to the economy improving. This means that opposite of what we’re all told, taking pay cuts, loosing benefits, having our co-workers instead of us laid off, only hurts the rest of the economy. So we need to fight to create more jobs and fight to have greater pay in benefits across all sectors if we want to improve the economy.
Private Companies Won’t Invest During a Recession
But where are those jobs going to come from? How about from Investment or “I” from the public sector? In a worsening economy, no individual company is going to risk investment in growing their company. And very few are going to risk trying something new when they could loose everything. Who will buy the products that they make or services that they offer if there are more and more people losing their jobs and those who have jobs have less money to spend? If all the companies coordinated their efforts into a joint investment campaign, then the job creation would create the income of people to spend to make their investments worthwhile, but: 1) capitalism is based on competition not cooperation and 2) any single company risking this have little to no effect, while also probably losing all of their money on the investment because the goods they make or the services they provide wouldn’t be purchased without a general bettering of the economy.
Wall Street is Profiting from Our Productivity
So if the companies aren’t investing, then where is Wall Street making it’s money? Afterall, isn’t Wall Street where money is put into the economy? And why is our economy growing if there’s less jobs and less pay? We’ll that’s the trick. Actually Wall Street is where money is skimmed from the economy. Right now, employers are taking advantage of the economy by making their workers work much harder for less pay. The economy is growing, but the employers are putting the money in their pockets not ours. For example, evidence of the increase in how hard working people are working can be found from data from the government agency, the Bureau of Labor Statistics . In the 2nd and 3rd Quarter of 2009 nine there was a sharp increase in worker productivity: a 6.9% in the 2nd Quarter and a 7.2% increase in the 3rd Quarter, compared to a .8% increase in 4th Quarter 2008 when the economy started its biggest declines. It’s no accident that Wall Street started booming recently. Instead of that increased value from the more productive labor or working people putting money into the economy, it’s being taken out by the already wealthy.
You Can’t Export in a Global Recession
Before we look at “G”, let’s look at NX real quick, basically NX is about how much you’re selling to other countries vs. how much your purchasing from other countries. The bottom line on this issue is that no country is doing well enough for any other country to hope that they can export to them any more than is already done in this economy. This recession is world-wide; we can’t count on exporting our way out of the economy.
Why Government Isn’t Doing Enough
Ok, what about “G” or Government? Yes government could have a huge role in helping out the economy. Unlike the private sector, government can spend on things like education, health care, fire services and other public projects without worrying about a low return on the investment driving them out of buisness. This social spending not only betters our lives, but creates jobs and income that has a positive carry over effect to every other aspect of the economy. It’s what brought the United States out of the Great Depression. But there is a major problems with this. Despite the stated (or perhaps real) intentions of our elected officials, politics is a game of power. The people most effectively organized to use their power are the wealthy, so we saw massive bailouts to save the banks that created predatory lending schemes, but hardly any money to directly assist those people caught in these predatory lending schemes by banks. We saw executives get bonuses and investors money saved while people who tried but couldn’t make their mortgage payments as their home interest rates when up, or they lost their job, were kicked out of their homes. Government responds to the most organized interests.
It’s About Organized Power
Usually, not only are the wealthy the friends of the government because they come from the same economic classes, but also the wealthy are the most organized with their power to influence the government to benefit them. The only way to combat that power is to meet power for power. For example, in the 30s when working peoples movements were built throughout the country in the form of militant workplace organizations or tentants’ unions, the government feared revolutionary upheaval, so in order to save capitalism, President Roosevelt taxed the highest income bracket at the marginal tax rate of 90% and put that into creating jobs in the economy through New Deal projects and eventually war spending.
Now however, when the idea of raising the highest marginal tax rate to even 40% is suggested, the proposals are slandered as “socialist”! So instead the stimulus plan is financed on debts to other countries such as China. And these increased debts make it harder and harder to find more money. The money that is found ends up being more expensive because there’s less of it to go around. On top of that, we’re effectively borrowing from a future that at some point we’ll have to pay back. Even the stimulus funds that are borrowed are used not even close to how much would be needed to help the economy. Sure some jobs were saved, and some were created. But the kind of funds that are needed are way beyond what the government is spending on public projects and social services. Why? Because the wealthy through the media, through their think-tanks and lobbyists are fighting tooth-and-nail to avoid tax increases on them, even though some of them probably realize that in the end it will end up helping them and saving the system that helps them.
Lack of Organized Working People’s Power= The Wealthy Interests Control the Discussion of the Economy and the Economy Itself
But are working people fighting tooth-and-nail to defend our interests? Not at all. Instead we’re buying everything they’re telling us. We’re accepting pay cuts, accepting layoffs, accepting cuts to social services, etc. We’re even demanding that it’s only fair if private sector workers take a cut, so should public sector. If only we realized that public sector growth in pay and jobs could be the catalyst improving the economy for all of us… not to mention, it’d be great to get better social services (education, health care, fire service, etc.) and see an increase in public projects (increased public transportation projects, renewable energy investment for our future). But instead of making any kind of organized demand on the government for our interests, instead of realizing that all of our interest as working people is tied up in the interest of each of us, we’re fighting each other over the scraps and helping to contribute to the rich and powerful getting more rich and powerful while the rest of us get poorer and more powerless.
So Why Are Working People the Solution to this Economy?
Well there’s a short to mid-term reason and there’s a long-term reason. In the short-term, working people (both employed and unemployed alike) need to organize ourselves at our workplaces and in our neighborhoods to fight for our interests. Our interests correspond to the solution to our economic problems: more jobs and better pay brings increased consumption. Consuming more of our needs and wants adds to the economy and creates more jobs and more opportunities for increased pay. Also, demanding social services and public projects from the government like more funding for education, health care, fire service, public transit, public energy projects, etc. paid for by 15% to 40% tax increases on the top two income tax brackets (the 33% and 35% tax brackets for individuals making around $170,000 or $370,000 respectively). The new 48% to 73% and 50% to 75% tax brackets wouldn’t even reach the roughly 90% level that President Roosevelt implemented to during the end of the Great Depression of the 30’s to finally pull the country out of it. Not only would the public services and public projects bought with these funds improve our lives, but they would create more public sector jobs which would add money and opportunities to the economy (which would create more private sector jobs and opportunities for pay increases). It also wouldn’t be borrowing against our children and grandchildren like we are now through our increasing debt. However, we need to guard against tendencies to fight amongst ourselves for the scraps like the rich and powerful might want us too. Instead we need to see the larger picture, that any time any section of working people benefit by getting jobs or better pay and benefits (expecially the unemployed and lowest wage workers), we all benefit from the positive effect this has on the economy. We also need to guard against our employers using the economy as an excuse to overwork in order to secure their jobs and ensure the profits of speculators on Wall Street. So in the short-term, we need to build the kind of working people power that can force our employers and the government to give us better pay, create more jobs, increase taxes on the two highest income tax brackets and provide more social services/ funding for public projects (that will also create more jobs and better pay) if we want to get out of this economy and quit letting the rich and powerful take advantage of the situation.
What about in the Long-Term?
Realistically though, capitalism is going to have it’s ups and downs. These “cycles” are part of the normal functioning of capitalism according to economists. We’re also going to continue to have decisions made by the elite that are not in our interests as they monopolize the control and resources while we provide all the goods and services which are the foundation of the economy. Ultimately, we need to build the power of our workplace, neighborhood, community, student and other organizations so that we can abolish capitalism and it’s government all together. In it’s place we need to replace it with democratic popular institutions to administrate our society and our economy so that it’s controlled collectively and directly by us to fulfill our needs and wants in a rational, fair and humane way. But the elite classes will never give up their power. Even those entering with good intentions will either be blocked by others already in power or will come to realize that power over does indeed corrupt. To clarify, creating power with others to uplift, liberate, and defend isn’t corrupting. It’s the power over other that corrupts even the best intentioned. So the solution must come from a popular struggle of ordinary working people like you and me, organized and united to create power with each other willing to fight the long fight through losses and gains until we build enough popular power to create a new society, economy and world that solves the fundamental problems facing us.