We are in the midst of very hard economic times—everyone agrees. But there is not agreement on causes or responses.
Most mainstream economists believe that capitalism is a stable system. For them, the private pursuit of profits keeps things in balance. Recessions and high levels of unemployment are caused by unexpected exogenous shocks—definitely not by the workings of the capitalist system itself. Many actually believe that the main cause of economic instability is the government; they believe that its spending generates imbalances which markets can only slowly overcome.
The biggest worry for these economists today is that we might demand regulations or restrictions on private profit-making activity (or even worse—public ownership, planning or production). As they see it—if we would only be patient and allow market forces to work, things will return to normal—although how they understand normal is itself an important issue that needs further discussion.
This seriously flawed understanding of capitalist dynamics guides the thinking of most if not all Obama’s main economic advisors. For example, here is how Christina D. Romer, Chairwoman of Obama’s Council of Economic Advisor, explains the business cycle:
Just as there is no regularity in the timing of business cycles, there is no reason why cycles have to occur at all. The prevailing view among economists is that there is a level of economic activity, often referred to as full employment, at which the economy could stay forever. . . . If nothing disturbs the economy, the full-employment level of output, which naturally tends to grow as the population increases and new technologies are discovered, can be maintained forever. There is no reason why a time of full employment has to give way to either an inflationary boom or a recession. Business cycles do occur, however, because disturbances to the economy of one sort or another push the economy above or below full employment.
What causes those disturbances? For Romer and most of her associates the culprit more often than not is an overly aggressive use of monetary or fiscal policy by the government. No contradictions or class tensions exist in this world.
Such a perspective has encouraged most mainstream economists to celebrate whatever “market forces” produce. They dismissed concerns of income stagnation for the majority and celebrated the concentration of wealth in the hands of a small minority. They dismissed concerns of deindustrialization and celebrated financialization. They dismissed concerns of stock market and housing bubbles and celebrated the economy’s debt-driven growth.
Not surprisingly, the severity of the current crisis has taken them by surprise. Forced by circumstances to respond, most suggest policies that are carefully designed to avoid any direct challenge to existing structures of power and wealth (think financial bailouts). But this limitation means that their policies are incapable of addressing our immediate or long term needs.
We need better–a real debate on alternatives for a start–but we wont get it unless we organize and push for it.
To be continued.