What's An Economy For, Anyway?
By Robert Roth at Feb 09, 2009
A New Political Economy 101
What’s an Economy For, Anyway?
By ROBERT ROTH
We need a whole new economy. And to get one we need, as always, understanding, organizing, action. This article gropes toward understanding what an economy is and could be in the context of our present, multi-faceted dilemma, in the hope of facilitating organizing and appropriate action.
The economy – by definition, right? – is that matrix or network of institutions and interactions that meet human needs. Or, is it only about how human needs are met by means of transactions that involve money? Is the economy only about what is bought and sold? If so, what about barter, the exchange of goods and services? What about caring and caring activities that are not valued in the present economy? Where do we draw the lines?
I have thought for years of the economy as the sum total of goods and services exchanged for money. That’s what the Gross National Product is all about, and that’s how it’s measured, right? And the Quest of the Day (and perhaps the Decade) is how we’re going to “jump start” the economy. At present “the economy” is winding down, contracting, with unemployment rising by the hour thereby further decreasing demand for goods and services thus leading to further contraction.
But the idea that we can jump start the economy implies that what we were doing before the crisis began is capable of being continued, of going on as before. The idea that we should jump start it – by any means necessary, it would seem -- assumes its operation is critical to our health and welfare, essential to our wellbeing and even survival.
As things now stand, leaving increasing numbers of people without money certainly threatens those people’s health, wellbeing and ultimately, survival. Granted, the Obama administration seems to be making an effort to integrate into the “stimulus package” a great many worthwhile activities, that will produce immediate or even lasting value. But the bulk of it, including the tax cuts, is intended simply to get the economy “going again,” in the same direction it had before the crisis. This will use up increasingly scarce resources on what may well be a fool’s errand. So maybe now is a good time to ask whether the economy we had, which is now contracting, can or should be revived.
So I’ve been thinking about how to define the economy, and economics. Clearly, we need an economy that functions as if people mattered, to a much greater extent than the one that’s now winding down. What the economy produces should not be limited to the goods and services for which money was routinely exchanged under the Old Economy. But if the economy is about meeting human needs, does it include all human activity, all of which would seem to occur to meet someone’s need, else why is it happening?
Frankly, I’m not entirely clear about where to draw the lines. But it does seem to me the economy should be designed to meet human needs. The question is how to do that, and economics should be the search for that answer. The is, we can not only study what is taken for economic activity, but think about how we might build an economy from the ground up, and what it should do.
By that standard, economics as taught in schools is extremely flawed and limited. For example, every economy has some unemployment. Some “natural” rate occasioned by people moving between jobs may be acceptable, but otherwise, the economy should give a job to everyone who wants one, and provide the means of livelihood to everyone. There are those who would say that’s interfering in the natural working of the economy. More on that below. But first, note that while by even the standard measures unemployment is moving into unacceptable territory, there are those who say the actual rate is much higher, because the government rigged the way unemployment is counted some time ago. According to Paul Craig Roberts, former assistant Treasury secretary in the Reagan administration:
Noted statistician John Williams (shadowstats.com) reports that biases in measurement have understated the job loss over the last 12 months by 1,150,000 jobs. Williams reports the unemployment rate as it was measured prior to “reforms” designed to minimize the measured rate of unemployment. According to the methodology used in 1980, the US unemployment rate in December 2008 reached 17.5 percent. http://www.counterpunch.org/roberts01122009.html.
Such rates are clearly unacceptable, and obviously unnecessary, when there’s so much work to be done. But I’m reminded, and we should all recall, that the subtitle of E. F. Schumacher’s Small Is Beautiful – as relevant and useful today as when it was published decades ago – is Economics As If People Mattered.
Another useful book that reexamines basic premises is Riane Eisler’s The Real Wealth of Nations. Eisler makes a strong case for the proposition that economic measurements should include caring activities that simply don’t count under conventional economics, but which can be measured and assigned value and which are importantly productive. Even The Financial Times has recognized that many economists are denouncing GDP as “a mirage” that ignores the social worth of an activity and looking for other yardsticks (John Thornhill, “A measure remodeled,” 1/28/09, p. 9).
Another useful perspective comes from China. In a recent Financial Times interview (2/2/09), Chinese Prime Minister Wen Jiabao says that when he travels he always carries a copy of The Theory of Moral Sentiments, an all but forgotten classic which lays out the moral underpinnings for governing societies -- and market economies. Adam Smith is frequently cited for the proposition that mere mortals should not interfere in the functioning of markets but should instead rely on their “Invisible Hand” to arrive at the optimal allocation of resources. Of course that idea is a cruel joke in part because resource allocation is invariably manipulated as needed to insure the profits of large corporations and their wealthy owners. But further, those who cite Adam Smith conveniently forget that he assumed those who participate in the economy would conduct themselves morally. And as Mr. Wen notes, “Adam Smith [also] wrote that in a society if all the wealth is concentrated and owned by only a small number of people, it will not be stable.” Even the old FT points out that this observation “holds just as well for the crisis-ridden US as it does for China, with its skewed model of development and rising inequality.”
I don’t propose to present a treatise at this point, but I do think a reexamination of the basic premises of the economy is long overdue, and now looks as good a time as any to do it. Let’s say the economy is that matrix or network of institutions and interactions that meet human needs. So the question is how to do that, or how that is done, and the answer is the economy, and the study of that is economics.
Remember that there were economies before there was economics. For thousands of years people in various places and groups did whatever it took to survive and meet their needs and, in terms defined by their cultures once subsistence was transcended, prosper, and at some point people began to study how that happened and the result was economics. I like the concept of political economy because it captures the fact that how we meet our needs from among the many possible ways, and which and whose needs to meet, are political questions.
For starters, the economy should provide work for all who can perform it, so as to meet the basic needs of everyone, and in doing so should produce a reasonably fair distribution of income and wealth. Conventional economics assumes that people are rational beings who make rational decisions and that the sum total of those decisions results in aggregate demand and myriad specific demands (for particular goods and services). But the idea of allowing demand entirely to determine supply – i.e., what is produced – without human “interference” presumes that the distribution of wealth is such that everyone’s needs will thereby be taken into account. Therefore, allowing the “free market” to determine the structure and substance of our economy when income, wealth and power are unfairly distributed is simply a veiled rationale for allowing people with money and power to determine the structure of daily life, including who will live and who will die before their time. The notion of “markets” as an imperative, a “natural” process with which it’s wrong to interfere, as if the economy were a machine that followed the dictates of natural law and no others, attributes to aggregate demand – the sum of what people with money want – a normative power that is an inherently value-laden choice. And this is before getting to the fact that in today’s economy, wants and needs are, if not entirely determined, at least enormously influenced by multi-billion-dollar advertising and marketing operations that create wants and perhaps needs in service to the interests not of the buyers of goods and services but of those who pay the marketers. This is part of a larger propaganda operation designed to keep people focused on trivial pursuits so they don’t interfere with more important stuff, like politics.
So I think it’s a mistake to approach the study of economics as analogous to physics. The natural world exists apart from human intention, and natural “laws” are similarly beyond human influence. Economic arrangements, on the contrary, are the result of human decisions. Political decisions.
So we could construct an economy by asking and answering the questions: What do we need to survive, and what wants beyond needs do we want to satisfy, and how might that be done? We could assume as starting points that our system of arrangements should provide the means of at least subsistence – more if possible – for everyone, either in exchange for their labor or, in the case of people with disabilities that curtail their ability to contribute, as a human right. Then we might devise ways of doing that, and create rules to see that it gets done.
At the moment the economy that has heretofore dominated our lives has required that people work in order to live. There is also of course a “safety net,” rather flimsy in the US, to meet some of the needs of those who can’t earn enough to do so by working, or can’t work at all. The fact that Europeans work less, have more vacation time and holidays, and have sturdier and more generous and elaborate safety nets, and that European businesses still manage to be competitive with the US, belies any “economic” rationale for the state of working arrangements in the US. Indeed, the Western European “safety nets” naturally operate countercyclically, and have thus far shielded those economies to some extent from the current contraction, while the US has had to run around increasing food stamp allocations, extending unemployment benefits, etc., on an ad hoc basis, to try to repair the damage (to people, with its attendant impact on aggregate demand) after the fact. But the fact is that the US is simply so dominated by business interests and the rich investors who own them that the fruits of productivity become profits rather than wages, while the corporate dominance of the US media prevents these things from coming to the attention of the general population.
Current efforts by various governments to “jump start” the Old Economy assume that, like a car whose battery has run down, the economy we had a year or two ago is ready and waiting for the appropriate stimulus to start up again and run as before. However, the economy that preceded the crisis was already essentially running out of gas: most people’s wages been falling for thirty years behind the levels needed to sustain what the culture defined as a quality lifestyle, and the economy needed as aggregate demand. So in order to purchase homes, cars, educations, and myriad other products and services, most people had been operating on credit. To expect an economy to run indefinitely on ever-increasing credit is to define the economy itself as one huge Ponzi scheme, and is by definition unsustainable.
Mike Whitney (http://www.counterpunch.org/whitney01192009.html), Paul Craig Roberts (e.g., http://www.counterpunch.org/roberts01122009.html) and others have explained why even the Old Economy can’t be expected to revive without, at the least, more jobs at higher wages, debt relief, and the abandonment of imperialist wars. However, even that’s not enough. When the US and Western economies have recovered in the past from such crises as the present one(s), the means of production could call upon the resources of the natural world – including not only cheap oil but such resources as air and water, treated as “free goods” in calculating the costs of production – to resume operations. Now, with natural resources, especially oil, substantially depleted and the continued operation of the economy in its former form threatening the means of life (e.g., the oceans before overfishing) and the biosphere itself (e.g., breathable air, drinkable water), it is not only unwise but probably futile to look for a “jump start” to produce much activity. The creation of more jobs at higher wages will require a complex process of reconstructing an economy as if people mattered. We need something – indeed many things – to be substantially different; including, for example, the means of producing food by sustainable agricultural practices. But we need to stop right away throwing our last few trillions – which already aren’t ours, but will have to be borrowed – at Wall Street, or into supposed “stimulating” activities that have no future.
Given the myriad difficulties of the present moment, the new agriculture envisioned by Wes Jackson in Robert Jensen’s excellent interview (http://www.counterpunch.org/jenssen01302009.html) and the 50-year plan to create it are eminently realistic, and would be one good way to start. We need not only new and better ways of farming but more people on farms, and if there isn’t the money to pay them but there are people starving for lack of work, that’s a flaw in the economy that can be fixed by human action. More conventionally, investing almost entirely in mass transit rather than automobile-related infrastructure could be another critical part of the solution. Margaret Kimberley (“The Deepening Economic Crisis,” http://www.counterpunch.org/kimberley02042009.html) makes some additional useful suggestions, such as demanding true health care reform (which would relieve considerable stress on existing businesses) and drastic cuts in wasteful as well as dangerous military spending. But things are already much worse than most people realize. “Bubbles dot the economic landscape like it’s bath foam,” or in Nouriel Roubini’s words, “a housing bubble, a mortgage bubble, a bond bubble, a credit bubble, a private equity bubble, and a hedge funds bubble – all are now bursting simultaneously.” And as long as you try fixing the situation “within a dead framework, things will only get worse.” P. Sainath, “The Freefalling Economy,” http://www.counterpunch.org/sainath01232009.html. Whatever he does, President Obama asks us to see it as change we can believe in, and most Americans seem to be either cheering from the sidelines or simply standing around hoping for the best. But until more of us take action to define the future, we’ll continue to be, as P. Sainath puts it, “only gripped by change we can’t believe [we’re] seeing.”