Their Assets; Our Debts
Sometime ago, Bank of America took over my AAA credit card company. Now my bank statement lists the amount I owe on my credit card as an “asset” of mine. The more debt I owe, the higher the value of my overall “wealth” according to this way of accounting. Likewise, today we hear about the federal government buying up “assets” of the failing banks and other financial institutions. These “assets” are, of course, also debts, and very bad debts that can’t be repaid. One small but significant difference between the quality of the assets listed on my bank statement and those of the failing financial institutions is that I know the market value of each item I paid for with my credit card. Financial institutions that sold, and resold their “assets” to other foreign and domestic banks, have no idea what they are worth, and many experts say most of this financial debt is worthless, not collectable.
So what are the consequences of taxpayers bailing out these troubled financial institutions by buying their worthless assets? The result is the same as it has always been historically during times of economic crises. Economic wealth is “redistributed” from the pockets of wage earners, into the pockets of private corporations. During the Great Depression, John Maynard Keynes met with President Roosevelt to advise him on the best way to carry out a program of redistribution of income and resources away from “consumers” and toward expansion of profitable industrial production. FDR reportedly said that Keynes seemed like a nice young man, but he had no idea what he was talking about.
Keynes’ message about the least painful way to bring about the necessary redistribution of economic resources sufficient to get the economy expanding profitably is set out in his “General Theory,” where he underscores that inflation is the safest way to lower wage workers’ consumption and their portion of production. Direct wage cuts, he cautions, would turn the workers against their employers. Significant injection of government spending into industrial production, rather than into the production of “consumer goods,” results in inflation. The price of daily necessities goes up due to shortages or rationing, and the real value of workers’ wages goes down. (Milton Friedman has also advocated inflation as a most efficient tool for redistribution of economic resources and increasing profitability.)
It is difficult to believe that FDR did not understand Keynes’ perspective. However, the President clearly understood the politics of the enormous investment in real economic expansion that would be required to increase the profitability of US industrial corporations sufficiently to get us out of the depression. The WPA benefited relatively few individuals; and the government refinancing of foreclosures also helped a tiny fraction of those who lost their homes. It took entry into World War II for the president to acquire the expanded authority necessary to take over US economic production and bring about a “redistribution” of economic resources adequate to retool industry and expand production for military purposes.
Many economists and policy advisors over the past 25 years have taken note of declining rates of profit in the largest US manufacturing industries (particularly prior to the invasion of Iraq), and the declining value of real wages for the average working person since the early 1970s. Some have said that it would take another Pearl Harbor to resolve the ongoing US economic and political problems. Others noted that “911” resulted in an enormous increase in presidential powers, and that both private military contractors and the oil industry profited tremendously from the US invasion of Afghanistan and Iraq. At the same time, cuts in wages, lay-offs, unemployment, increases in hours and worker productivity without increases in pay or jobs, have continued to insure that working peoples’ real incomes decline. When will this process of economic “redistribution” be sufficient to get the US economy going again, creating jobs, and increasing real wages? Will taxing our wages to pay for the trillion-dollar bad debt of failing financial institutions do it? Will war with Iran increase government spending and redistribution of economic resources sufficiently to get the US economy working for all of us again? Or is this what many are calling the end of the American dream and our relatively high standard of living? It appears that retooling our industries, and acquiring the economic resources of US occupied countries will require even greater sacrifice on the part of the US wage-working consumers and taxpayers.
Economists used to be more forthright about acknowledging that war was just economic competition by military means. In the usual “booms and busts” of “business cycles,” so-called “less efficient” companies went bankrupt and were bought up at bargain prices by larger corporations. Unemployed workers were also willing to work for much lower wages. This cheap source of industrial plant, equipment, and labor has historically lowered production costs of the bigger, surviving corporations. In this way, economic production and profitability has repeatedly increased at even greater rates than before the recession/depression. When this usual method of economic competition is not sufficient to turn around a deep economic crisis, taking the resources of another country by military force, while reducing its population to beggars willing to work for starvation wages, is another way to reallocate or “redistribute” economic wealth and resources.
Are there any limits on the U.S. Empire and economy to carry off the necessary redistribution this time around? Recently, a commentator on the BBC referred to the solutions being proposed by the US government and the financial institutions as “progressive corporatism.” He said (down-playing the idea) that some people have called this “fascism”, subsequently concludingthat this combination of “semi-public, semi-private” ownership and management of the economy is neither socialism nor fascism.
Regardless of what we call it, the important question is how long will working people, consumers and taxpayers stand for paying the costs of larger, deeper, more wide-spread economic busts that lower our standard of living, destroy social programs, and bankrupt our pubic institutions and infrastructure. Bursting financial bubbles are just the sexy foam that distracts us from confronting the crisis in the underlying material economic reality. Our economic system, as well as the financial and political institutions that prop it up, has been in trouble and changing radically since the 1970’s. We need to decide for ourselves which road we want to take in creating a system of production and distribution that truly provides for us all.
MARY LYNN CRAMER has dedicated the past twenty-five years to very-low paying "applied economics," working as a bilingual social worker with families and children. She has degrees in economic history, economic theory and social work.