Economics 101

English: Cropped version of File:Official port...

English: Cropped version of File:Official portrait of Barack Obama.jpg. The image was cropped at a 3:4 portrait ratio, it was slightly sharpened and the contrast and colors were auto-adjusted in photoshop. This crop, in contrast to the original image, centers the image on Obama’s face and also removes the flag that takes away the focus from the portrait subject. (Photo credit: Wikipedia)

“You didn’t make this,” said Barack Obama during the 2012 campaign and the GOP made a big deal of it, even adopting the idea as the theme of their convention. Apparently Barack was paying more attention in class than Mitt and the business-oriented leaders of the GOP did. The standard text in Economics 101 is Economics by Samuelson and Nordhaus. The quote below is from the 17th edition.

“It is only too clear that all of us reap the benefits of an economic world we never made. as the great British sociologist L. T. Hobhouse said: The organizer of industry who thinks that he has ‘made’ himself and his business has found a whole social system ready to his hand in skilled workers, machinery, a market, peace and order–a vast apparatus and a pervasive atmosphere, the joint creation of millions of men and scores of generations. Take away the whole social factor and we [are} but…savages living on roots, berries, and vermin.”

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Freedom and democracy

Illustrates the intersection of supply and dem...

Illustrates the intersection of supply and demand curves as the free market equilibrium (Photo credit: Wikipedia)

Whenever the US goes to war, our fighting men and women are told that they are fighting for freedom and democracy here and abroad. That is untrue. What they are really fighting for is free market capitalism and profit. Once free market capitalism and profit are established, those on the Right no longer give a darn about freedom and democracy. If the GOP cared about democracy, they would not be trying to restrict voting rights here in the US.

Aftershock

Robert Bernard Reich, American politician, aca...

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Aftershock, the Next Economy & America’s Future by Robert B. Reich is well worth reading. Here is the summary last paragraph.

“None of us can thrive in a nation divided between a small number of people receiving an ever larger share of the nation’s income and wealth, and everyone else receiving a declining share. The lopsidedness not only diminishes economic growth but also tears at the fabric of our society. America cannot succeed if the basic bargain at the heart of our economy remains broken. The most fortunate among us who have reached the pinnacle of power and success depend on a stable economic and political system. That stability rests on the public’s trust that the system operates in the interest of us all. Any loss of such trust threatens the well-being of everyone. We will choose reform, I believe, because we are a sensible nation, and reform is the only sensible option we have.”

Borrow and spend

French Finance Minister Christine Lagarde (L) ...

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Borrow until you are bankrupt. That’s a policy that individuals can adopt, but nations cannot. There is the International Monetary Fund (IMF) that acts like a global enforcement agency, compelling spendthrift nations to tighten their belts to receive loans. The IMF enforces the Washington Consensus that free markets and global trade are good. Not everyone agrees with the Washington Consensus, but as it is the policy of the world’s only superpower, smaller nations have few other options. It’s similar to the influence that individuals have within the US to influence our economic policy. When times are tough, it is the little guy who must tighten his/her belt the most. This is true within the US and also abroad thanks to the enforcement efforts of the IMF. Eventually, the IMF will attempt to direct US internal economic policy, but that time has not yet come. Rather the GOP has adopted the policies of the IMF and is now acting as its surrogate.

As I see it, our best chance of avoiding the attention of the IMF and the GOP is to grow our economy to reduce the deficit while putting people back to work in jobs that pay a living wage. We should enact higher taxes on unearned income and at least temporarily act to reduce imports from China and elsewhere through tariff and quota mechanisms. This is the route we took when we were a fledgling industrial nation, and it is the way all successful industrial nations currently structure their economies. The US is viewed by the world as the world’s ultimate consumer, a dumping ground for the world’s over-production of goods and services. US consumers no longer have the purchasing power to be the world’s consumers of last resort.