USA: Sideways, surplus, and structural problems

May 14th, 2012

Published on RWER Blog, by Peter Radford, May 11, 2012.

The economy sidles along. Sideways has become the constant theme this year and none of the news contradicts the notion that our malaise will linger. In view of the lack of leadership from Washington – the never ending American election cycle militates against actually doing anything other than run for re-election – we cannot expect dramatic policy initiatives of any stripe or color … //

… We have structural problems:  

  • This is a bit like discovering you have some dreaded disease. Serious people all intone in calm and authoritative ways that the medicine will be bitter. It will also take years to show its effects. Along the way we all must try to hang in there, not get despondent, and look to the long term, when the economy will surely blossom. That far off spring will be nourished by an army of clever, hyper-productive, adaptable, and, presumably, low cost workers all of whom will be willing to accept flexible wages, lower benefits, and insecure employment. This re-structured workforce will be the envy of the world. It will allow the platonic vision of permanently low taxes to be coupled with permanently high profits, personal rugged self-reliance will displace flabby reliance on government hand outs, and our economy will soar. Just like it did in the Reagan years. [Insert wistful yearning noises here]
  • Meanwhile the unemployed should endure. Yes this is a sad and rotten thing. But, hey, re-structuring takes time. And we have no alternative. None at all. No gain without pain is both a cliche and serious economic advice.
  • The attraction of this ridiculous proposition is that its results are a long way off and it allows structuralists to avoid doing anything in the near term. They can be content that they have tried. They have thought things through. And they have found that nothing can be done – seriously anyway – about our high unemployment rates. Yes it is indeed a rotten and sad thing. But that’s the way of the world.

Hogwash:

  • The odd thing about structuralists is that they are the very same crowd who got us into this mess. If we have structural problems it is because of their policies. Think about that. They were the advocates for massive deregulation. We were assured that the market magic they so fervently adore would act to eliminate problems. The market will take care of it. With “it” being whatever problem your cared to highlight.
  • The relentless pursuit of shareholder value would ensure, inevitably ensure, the correct and efficient allocation of our nationals resources. After all shareholders are private folk, and we all know for certain that private folk know exactly what to do with resources. Better than the horribly inefficient government anyway.
  • Workers will respond to their growing insecurity by throwing themselves into a frenzy of re-education and skill acquisition. The market will ensure, inevitably ensure, our workforce has competitive skills. Its about the incentives. We don’t need government subsidized training. We need to make people responsible for themselves. They’ll get on with it just as soon as the dead hand of government is lifted.

The list goes on:

  • The structuralists won the debate back in the early 1980’s and went on a binge of structural correction. They recast the economy in image of their free market theory. They deregulated, attacked institutional rigidities [aka unions], stomped over wages, slashed at training programs, and happily structured away through two bubbles and a near historic economic collapse.
  • In the aftermath of which they announce that our problems are all structural.
  • A simple, refutation goes this way: an economy out of whack would have hot spots of high activity associated with weak spots where the structural problems were most corrosive. Some industries would be desperate to hire, would be paying high wages to attract labor, and would be booming along. Others would be shrinking, shedding labor, and be rife with bankrupt firms.
  • None of this do we see.
  • The weakness is across the board. No industries are hot spots. Employment is rotten throughout. And, curiously, corporate bankruptcies are relatively quiescent. There are no signs of the kind of lopsidedness typical of an economy laden by structural problems.
  • And the recent record of our deregulated banking system is hardly great testimony to the asset allocating prowess of market magic.
  • What’s are structuralists to do? With the project wallowing in its own mess, they double down. They cast aspersions at the cyclical argument to divert attention from their own failure and to prevent the public getting a proper and balanced view. They pose as being serious. They disparage alternatives. They discourage debate. They puff themselves up and engage in a self sustaining closed loop of a discussion.
  • From which no effective policy will emerge because structure is not our major problem. Sure our education system needs buffing up – it has been neglected and underfunded for way too long. Sure we need better training for our workers – it was big business who slashed training programs first in the name of cost cutting. Sure we need to cut the burden of health care costs. Sure …
  • But the fact remains. We have a demand problem. A cyclical demand problem. Our economy is stuck in a low gear because people are unwilling or unable to spend. Simple. Easy.
  • But not fixable while the serious people dominate policy making.
  • Sad. No?

(full text).

Link: Austerity was the big loser in the Greek elections, on RWER Blog, by Dean Baker, May 10, 2012.

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