As we look to solutions to our current economic crisis, we need to understand what has caused the mess we are in. We cannot reverse the mistakes unless we understand what the mistakes were.
In early 2008, Kevin Phillips came out his book, Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism, in which he pointed out (in the preface of his book on the web) that:
In "The Quiet Coup," an article in the The Atlantic, the author, Simon Johnson, demonstrated results of these bad decisions:
IMF policies have been notorious for driving poor countries into more desperate poverty and forcing them to adopt export-oriented economic structures. The countries with export-oriented policies and with a workforce driven to poverty wages have been used by the financial oligarchy of the world (including those of the U.S.) to undercut the wages of U.S. workers, producing cheaply in poorer countries and selling expensively to people in the U.S. Hence, the massive profits these wealthy interests have been making.
People in the U.S. have been sold on the idea that all of this was just fine - the "maturing" of our economy into a "knowledge" economy in which manufacturing is replaced by office work. But that was always a fiction. The real, ugly truth is that the U.S. standard of living and our ability to continue buying imports has been propped-up despite the loss of so many manufacturing jobs because the U.S. economy has been floated by a massive bubble of debt and make-believe Wall Street securities.
This fiction could not be carried on forever and, of course, in 2008, the bubble burst. Now, we are left to deal with the aftermath.
So, the core problem is that the U.S. gave up far too much of our high-employment, high-wage manufacturing jobs. That was a big mistake. So the solution is obvious. We need real solutions that rebuild our high-employment, high-wage manufacturing.
In early 2008, Kevin Phillips came out his book, Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism, in which he pointed out (in the preface of his book on the web) that:
Without much publicity, the financial services sector—banks, broker-dealers, consumer finance, insurance, and mortgage finance— muscled past manufacturing in the 1990s to become the largest sector of the U.S. private economy. By 2004–6, financial services represented 20 to 21 percent of gross domestic product, manufacturing just 12 to 13 percent. And finance enjoyed an even bigger share of corporate profits.He also pointed out an important cause of this:
...elements of the U.S. government decided, back in the late 1980s, that finance, not manufacturing or even high technology, had to be the sector on which Washington would place its strategic chips—would 'pick as a winner' in the parlance of that era. Farms and factories were expendable, but certain banks and other financial institutions could not be allowed to fail.I do not agree with much other of his commentary, but this description of the cause of our problems as the national decision to shift away from manufacturing and toward the financial sector is dead-on. (Except that I think these bad decisions actually go back further than the 1980s.) Of course, if you are in New Britain, Connecticut, you have felt the brunt of these kind of decisions directly. The fact that large-employment, high-wage factories have left in New Britain and similar communities across the U.S. is because these bad decisions.
In "The Quiet Coup," an article in the The Atlantic, the author, Simon Johnson, demonstrated results of these bad decisions:
From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.Johnson's article is a stunning indictment of the way our national economy has been run into the ground. He compared the political problems that lead to this crisis with his observations of the cause of similar problems in poorer countries. Here is what he says about what is happening in the U.S. right now:
...elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.Mr. Johnson's harsh criticism is especially weighty given the point of view he comes from. That is, his old employer was actually an important part of the problem. He was chief economist of the International Monetary Fund (IMF) and, in this article, (among other things with which I disagree) he seems blind to the fact that policies of the IMF have been in service of the very 'oligarchy' (his word) in the U.S. who he now rightly criticizes.
IMF policies have been notorious for driving poor countries into more desperate poverty and forcing them to adopt export-oriented economic structures. The countries with export-oriented policies and with a workforce driven to poverty wages have been used by the financial oligarchy of the world (including those of the U.S.) to undercut the wages of U.S. workers, producing cheaply in poorer countries and selling expensively to people in the U.S. Hence, the massive profits these wealthy interests have been making.
People in the U.S. have been sold on the idea that all of this was just fine - the "maturing" of our economy into a "knowledge" economy in which manufacturing is replaced by office work. But that was always a fiction. The real, ugly truth is that the U.S. standard of living and our ability to continue buying imports has been propped-up despite the loss of so many manufacturing jobs because the U.S. economy has been floated by a massive bubble of debt and make-believe Wall Street securities.
This fiction could not be carried on forever and, of course, in 2008, the bubble burst. Now, we are left to deal with the aftermath.
So, the core problem is that the U.S. gave up far too much of our high-employment, high-wage manufacturing jobs. That was a big mistake. So the solution is obvious. We need real solutions that rebuild our high-employment, high-wage manufacturing.
