By now we were supposed to have robust job growth as we recovered from the recession. This was supposed to be recovery summer, remember? The Obama administration figured that robust job growth this summer would fuel the reelection of Democrats this fall. What happened? We're still waiting as are the economic experts that Obama relies on who appear to be clueless. That includes Fed Chief Ben Bernanke, Treasury Secretary Tim Geithner and Larry Summers, Director of the White House National Economic Council.
There's a very simple explanation, but one perhaps the experts will refuse to accept because it has to do with a fundamental criticism of the capitalist system itself. You know it's really important if you want to fundamentally understand the capitalist system or any system to study the criticism of that system and not just the "rah rah, everything's for the best in the best of all possible worlds" guys. And the mother of all critics of the capitalist system was Karl Marx. A lot of capitalist economists wouldn't be caught dead with a copy of Das Kapital on their bookshelves for fear of being called a communist, but Marx, although his prognostictions about historical determination were a lot of hogwash, developed a very good critical analysis of capitalism and that's mainly what he was about. The fundamental element in his analysis was the centralization and the concentration of capital. And what we have going on today is that very thing. Mega corporations, not Mom and Pop stores control the economy from big banks to big oil to big food corporations which control the factory farms which produce most of our eggs and meats. We have seen disasters in each of these areas recently from the over 500,000 egg recall for salmonella to the Deepwater Horizon oil rig disaster to the financial meltdown of 2008 which caused the recession.
So what was the government's response to the recession and why, as generally acknowledged now, didn't it work. It was actually because of the concentration and centralization of capital which is also the same in other words as the emergence of giant mega corporations controlling the economy. For example, the government instituted the "Cash for Clunkers" program which was very successful as long as it lasted. Car sales shot up. But what happened when the program was discontinued? Car sales fell off a cliff. So the economy was stimulated as long as the government continued to pour money into it but stopped being stimulated as soon as the government stopped. Another example is housing sales. As long as the government was offering an $8000. tax incentive, housing sales shot up. As soon as the government discontinued that incentive, housing sales fell off a cliff with the result that last month we had the lowest rate of new and exisitng housing sales in memory. Why? because, as generally acknowledged, the government discontinued its incentive progarm. This was not supposed to happen. Once things got going again the conventional wisdom was that government wouldn't have to continue priming the pump. The economy was supposed to take off on its own without continued government intervention.
But it didn't happen. Why? Consider this, albeit an oversimplified example. When the economy consisted of a lot of smaller units - Mom and Pop stores, family farmers, local artisans and craftsmen - when something was purchased, the money went to another small time operator who then spent it buying something from another small time operator. Because they were all small time operators and not rich fat cats, they spent rather than saved their money. Thus money circulated round and round in the economy and economic activity was generated with every transaction. Now consider the situation today. When you buy something it is generally purchased fom some mega corporation. There are two dynamics. 1) The product purchased was probably manufactured in China so no jobs are created in the US when you buy such a product. 2) The product purchased was probably from a mega corporation so the money is saved and not put back into circulation or it is taken out of the local economy in the case of Wal-Mart and sent to Arkansas.
For government pump priming to work, the money injected into the economy by government has to be circulated and recirculated, not taken out of the econmy and saved or sent elsewhere. Therefore, it has to go from small time operator to small time operator - not from small time operator to mega corporation. This in a nutshell is why government pump priming has not worked and why Obama's economic policy as overseen by Larry Summers, Tim Geithner and Ben Bernanke has been a failure.
Consider the example of a sporting goods store. This account is based on material from a book, Free Lunch, by David Cay Johston. For more than two decades Jim Weaknecht had a sporting goods store in Hamburg, PA. He served local anglers and hunters heading into the Poconos. Then in 2001 a mega sporting goods store owned by Cabelas came to town. It was the Wal-Mart of sporting goods stores. They got all kinds of tax breaks from the local government to open their store. They lobbied for more than $32 million promising that the opening of their store would create jobs. They won big with a property tax examption and even getting to pocket the sales tax for themselves. Construction was subsidized by the local government. Cabela's was not pioneering anything new. They were just following in the footsteps of Sam Walton. It was corporate socialism. The tribute Cabela's demanded from Hamburg amounted to roughly $8000. for every man, woman and child in town.
Weaknecht's sales plummeted 70% as soon as Cabela's opened their doors. He was soon out of business. He was offered a job at Cabella's for $13.50 an hour. Now he and his wife each hold down two jobs but not at Cabela's. Cabela's and stores like them manipulate local governments for handouts instead of competing fair and square in the marketplace.
Now here's the denouement. If Weaknecht had stayed in business, not only would he have been continuing to sustain a local economy by pouring money back into it, he would have been paying property and sales taxes to sustain the local tax base. Other local sporting goods stores in neighboring towns would have been doing the same. Instead Cabellas put local sporting goods stores out of business for miles around and what did they do with the money they earned from locals? Why they took it out of the local economy, took it elsewhere and invested it instead of spending it. So money, instead of circulating, was sucked out. Ross Perot's giant sucking sound was heard as money disappeared from the local economy and undermined the tax base. This is happening all over America and represents the centralization and concentration of capital in the hands of a few large corporations instead of being more equitably distributed among a larger number of people and economic units.
So what can be done to actually get the economy moving again and create jobs if government pump priming has turned out to be an abject failure? Government needs to do continual and sustained investment in the economy and not just an intermittent and random injection of cash. Bernanke, by lowering interest rates, is betting that just injecting cash into the economy will do the trick. But it's not working, folks, is it? Instead of injecting cash into the economy, the government needs to use fiscal policy to create long term and sustained infrastructure projects. These are good for a number of reasons. 1) US infrastructure is dilapidated and falling apart. It needs to be rebuilt just for safety considerations alone. 2) Infrastructure needs to be modernized and hardened against terrorism. A new 21st century electrical grid needs to be in place to accomodate the many sources of green energy and transport that energy where it's needed, for example. Another example is the undergrounding of utilities nation wide so that every tornado, hurricane, ice storm and flood doesn't result in people being without power in the dead of winter or the heat of summer. 3) Following along after new infrastructure is introduced, private enterprise usually perks up and takes advantage of the newly installed infrastructure to create new businesses selling products. For example, the interstate highway system created opportunities for new shopping malls and housing tracts that wouldn't have been built otherwise. After the introduction of infrastructure, growth and expansion instigated by private enterprise usually soon develops.
What this calls for is a government industrial policy that would play the role of being the employer of last resort, build much needed 21st century infrastructure and be the catalyst for development by private enterprise. This is precisely what China and many other countries are doing. The role of government is to set the general terms, and then private enterprise can take it from there. Right now what we have are giant mega corporations who are trying to stuff consumer products down consumers' throats although the consumers don't have the money to buy them. To keep money circulating in this type of economy it has to be taken from the giant corporations in the form of taxes and then recirculated into infrastructure projects that provide jobs. With the money earned from their jobs, consumers can then go out and buy products. Since we are probably not going back to Mom and Pop stores, the only way the money from government that's injected into the economy for pump priming will work is if that money is redistributed from the economic sinkholes, which mega corporations represent, and invested by the government in jobs according to an industrial policy which will then regenerate consumer demand. In this way the system will become balanced, corporations will still make a profit and money will recirculate rather than stagnate.
