Saturday, October 15, 2011

Heading off to OCCUPY WALL STREET Today


will post when I return later. Here is an extended discussion of why we need to occupy Wall St. The financialization of the US economy has hurt most Americans while allowing unprecedented transfers of wealth:

 
Financialization in the U.S. has not only driven out most manufacturing, but it has also shaped the operations of almost every other industry by encouraging monopolization, lean production, and outsourcing (see Lynn, 2010; Rasmus, 2010). U.S. manufacturers had little incentive to invest in domestic labor, or even to modernize their manufacturing capacities at home, when higher profits could be achieved by offshoring production or by downsizing manufacturing by investing instead in financial products and services (see Roberts, 2010). Indeed, over the last thirty years, U.S. and U.K. corporations that formerly made things—such as autos and light-bulbs—found newly established financial services divisions to reap greater profits, as illustrated (prior to the recession) by the financial services arms of both General Electric and General Motors. Thus, financial logics replaced production ones even within manufacturing (Phillips, 2008).
New vocabularies and metrics circulated within the U.S. and U.K. to rationalize the evolving financialized economies. Keynes’ disparaging representation of the financial market as a casino was substituted by the neoliberal “efficient market” theory, which presumes market transparency and rationality (Krugman, 2009). Metrics of national well-being, such as unemployment or wage increases, were de-emphasized by the new authorities of “political monetarism,” which focused only on the stock of money supply while ignoring all other macro-economic statistics, including unemployment statistics (DeLong, 1999). Thus, neoliberal, supply-side vocabularies and metrics pushed by the Chicago School economists replaced the post-World War II Keynesian emphasis on aggregate consumer demand.
The Keynesian link between wages and aggregate consumption was broken, rendering the earning potential of the populace less relevant to financiers and policy makers alike. Low-interest rates encouraged by monetary economists enabled debt-based household consumption in a context of stagnating wages. Greater concentrations of wealth at the top enabled huge luxury expenditures by the wealthiest 10 percent of the populace. Average workers’ wage levels were increasingly perceived as irrelevant to economic growth and wealth accumulation by Wall Street and policy makers alike.
Simultaneously, corporate stock prices became less dependent upon consumer expenditures. Outsourcing and automation allowed corporate assets to grow (by squeezing labor costs) even if consumption remained constant. Additionally, pension programs and 401ks directed retirement funds toward inflating equities, which promised higher returns than the more traditional safety of lower-interest earning bonds (Joint Economic Committee, 2000). Finally, as mentioned above, corporations expanded their financial services and partnerships, producing annuity like steady-streams of interest from consumer debt.
These transformations achieved through the neoliberal financialization of the U.S. economy enriched Wall Street banks and investment firms, hedge funds, and the wealthiest Americans. Contributing to their capacities to acquire wealth outside of production was the expansion of derivatives (LiPuma & Lee, 2004) and new computer-based trading technologies (see Nadesan, in press). Financial traders found that rising stock prices were no longer necessary for financializing corporations or traders to accumulate profits. With the advent of high-frequency trading, market volatility itself produced speculative opportunities to high frequency traders (see Nadesan, in press). Speculation embraced losses as well as gains as the novel insurance of “credit default swaps” ensured profitability on the riskiest of investments.
The decreased relevance of U.S. labor impacted wage levels, household income, and local communities’ tax base. Citizens’ earning capacities deflated with fewer union job opportunities and stagnating wages. Simultaneously, public investments in educational and manufacturing infrastructures collapsed in all but the most privileged of areas. Household indebtedness grew.
Speculative or, rentier, debt-based capitalism expanded throughout U.S. society as consumer-debt was encouraged by the financial services industry (see Phillips, 2008). Debt was securitized into financial instruments such as bonds, derivatives, and collateralized debt obligations—that could be sold to unwary investors (see Pollin, 2007). The originate-to-distribute lending model that permeated nearly all forms of credit instruments made debt a highly profitable commodity while distributing “risk” internationally as investors around the world purchased bonds and derivates created out of pooled debt.
The re-invention of laissez-faire under neoliberalism offered another tempting technology for capital accumulation rooted in the predation upon, and privatization of, Keynesian (social and military) security apparatuses. For instance, David Harvey (2005) described a “neoliberal state” whose mission is to “facilitate conditions for profitable capital accumulation on the part of both domestic and foreign capital” (p. 7). In 2008, James Galbraith defined a “predator state” as “a coalition of relentless opponents of the regulatory framework on which public purpose depends, with enterprises whose major lines of business compete with or encroach on the principal public functions of the enduring New Deal” (p. 131). Predatory corporations dictate and “poach” upon public purpose and have no loyalties for nations or populations (p. 131).
The neoliberal, predatory state that emerges in the descriptions provided by Harvey and Galbraith diverges from the frozen, idealized descriptions of the liberal state provided by founding neoliberal thinkers such as Friedrich von Hayek (1991) and Milton Friedman (1962). Yet, current U.S. bailout policies and programs point to a predatory neoliberal state whose mission it is to resolve and remediate (without altering) the problems of governance stemming from neoliberal de-regulation, privatization, and financialization. Neoliberal economists have responded to this type of criticism by defending the natural superiority of “efficient markets” and “competitive advantage.” Neoliberal think-tanks promoted the market-friendly, debt-based technology of individual micro-enterprise as the solution for growing structural unemployment (Karoly, 2007). From the perspective of neoliberal authorities, what mattered was steady expansion of the nation’s Gross Domestic Product (GDP) and credit, not job creation. Government policy obligingly aimed primarily at ensuring steady expansion of the monetary supply (Krugman, 2009). Dissent was subdued by the combination of steady growth and low inflation, despite growing evidence of aggregate demand-dampening economic inequality.
BUT NOW DISSENT IS HERE!





3 comments:

  1. Majia, this is a most excellent summary.

    I would add or emphasize 2 important points in my humble opinion.

    The "capture" of government by the financial industry and the military/industrial complex, with unbridled lobbying, and a cast aside of the Constitution and Amendments, along with control of the media through direct ownership (by say GE, et al) and Government sponsorship (report what we want or you won't be embedded with the front line troops), have all been complicit in this debacle.

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  2. One other point, you mention 'transfers of wealth", and this is true, but indeed it not just a transfer of wealth, it is outright robbery, just worse than a thug hitting you on the head and taking your wallet.

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  3. Thank you for explaining the reasons behind the protests. I wish the front line people representing the protestors can explain these reasons to everyone.

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