Sunday, October 12, 2008

a grass-roots understanding of economic fundamentals

I would never be confused with an expert in finance. For one thing, on my campus, those people make waaaaaaay more money than I do. But I also have a very simple-minded conception of economic activity that has almost no relation to what goes on in The World Of FinanceTM.

Take this line from the Reuters story about the financial bailout summit held this weekend:

"The weekend produced the hoped-for result, a broad assault on the main problem, undercapitalized banks," said ING Bank economist Tim Condon.

See, I think the main problem is something different, not related to banks.

When John McCain was caught saying he thought the "fundamentals" of our economy are strong, and then later saying the economy was at risk, he had the story partly right, but as usual, didn't tell the truth about it. Mere hours after he said the economy was sound, the finance and credit universe was sucked into a black hole, and so McCain looked foolish. To cover up, his campaign started to back-pedal and say he meant that the basis of economic growth - labor, ingenuity, commitment, etc. - was sound. Obviously, that wasn't sincere. But more to the point, it was also false.

The economy is not what the Dow Industrials or the S&P 500 measure. They measure a large-scale high-stakes poker game that the vast majority of us will never, ever win.

The people with a stake in the poker game are trying to make large sums of money by tricking the system (that's what poker's all about), so they do things like buy companies, sell their assets, and hope to come out with a profit. They don't care about productivity or people eating. They sell loans to people in order to make money off of those people's productive labor. They don't care whether that labor really produces anything; they just want the profit from it. They're not responsible.

So, here in the US, this game has resulted in the systematic de-skilling of millions of people, the outsourcing of millions of jobs. Now that selling stuff to one another on credit is becoming a less sustainable form of employment, we all may have to start actually doing things, making things, growing things, and so forth. And we don't know how.

If, as no more socialist a thinker as Adam Smith theorized, human labor is the source of economic wealth, a workforce that has un-learned how to produce anything actually consumable simply can't create any wealth. If that's the "fundamentals" of an economy, then all the cash anybody wants to give to banks in the 1st world won't make any difference, because we can't make anything.


Dee said...

You have no idea how much I hate to say what I'm going to say here, because I have to quote Marx, and I hate THE IDEA OF MARX and how that idea killed half of my family together with half of Europe.
But here we go:
The political, the legal, the family, the press, the education systems are all rooted to the class nature of society. In turn that is a reflection of the economic base.
Marx insisted that the economic base or infrastructure generates or builds upon it a superstructure that keeps it functioning.

If we take apart, one by one the political, the legal, the family, the press, the education systems and analyze them and asses how they evolved or dissolved, we'll have to realize that the bastard was right.

No matter how much I personally resent to admit it.

Doc Nagel said...

There's Marx, and then there's Marxism, and then there's what has been said and done putatively in the name of Marxism. Similarly, Christ, Gandhi, and many others.

Dee said...

Putatively or not Fourier too came up with some phalanster-isme of his own that annoyed the bigots of his time but still, no harm done to planetary scale.
I don't really see what is "Ghandism" blamed for.

"Many others" are called Messiahs but we usually stone them to death, don't we? Why do some slide trough our fingers and others not?