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Stiglitz and Austerity

The Evils of Bad Criticism

by JOSHUA SPERBER

In his misleadingly titled essay "The Evils of Unregulated Capitalism," Joseph Stiglitz critiques ongoing austerity measures for an incriminating reason: austerity will deprive the U.S. and the E.U. of the "robust growth" that is required for a healthy global economy.

Yet, notably, Stiglitz never questions the ruinous consequences or sources of the growth he so heralds. For instance, water-contaminating fracking is typically justified by invoking the energy needs of "society," when these are instead the purposefully wasteful needs of, hardly "society" in some natural or inevitable state, but growth-driven production within capitalism. The "oil versus gas" loaded question is similarly misleading, as it does not challenge the mandatory economic growth that requires such massive energy production in the first place.

And what does it say about growth that its unprecedented successes have been met with profound poverty, hunger, and disease? The outstanding documentary Darwin’s Nightmare examines how global growth functions in Mwanza, Tanzania, an abjectly impoverished city on Lake Victoria whose inhabitants are afflicted with AIDS, environmental ruination, and hunger amidst the profitable exportation of local fish to the affluent Western European market. Capitalism is, after all, not designed to feed people but to make money.

Growth, as Marx showed in Capital ? and which nobody has since refuted ? occurs when capitalists appropriate the surplus value that is created by wage labor. But because labor is not only the basis of profit but also a business cost, employers, faced with the pressures of competition, are encouraged to eliminate workers, specifically when technological and other new capabilities enable the remaining employees to make up for the lost productivity. Accordingly, workers who still have jobs today are being given larger workloads, theirs and that of their terminated colleagues ? not mentioning that workers’ "free time" is now regularly occupied by work-related emailing, texting, and other out-of-the-office labor. Ever-growing demands on workers are the sine qua non not of unregulated capitalism but of capitalism itself, which is therefore by Stiglitz’s own standards (whether he recognizes it or not) the true source of the "evil."

Beyond not questioning the ramifications and source of growth, Stiglitz does not adequately identify why growth has struggled in the first place. On one hand, worker productivity and corporate profit are unprecedentedly high, and capitalism is doing precisely what it is designed to do: make rich people richer, which it has done more efficiently since the 1970s thanks in part to the expansion of finance. On the other hand, today’s profit is also connected to the fact that wages have stopped growing as a consequence of the 1973-4 slowdown. Because some seventy percent of U.S. economic activity is consumer-based, it was only the introduction of cheap and ubiquitous credit after 1973-4 that subsidized consumption and therefore the economy as a whole ? until 2008. With the collapse of the credit bubble, the chickens of stagnant wages have come home to roost.

Ongoing bipartisan austerity efforts are, as Stiglitz notes, a mistaken attempt to generate investor confidence and thereby induce lending. Banks, awash in taxpayer capital courtesy of the bailout, are not refusing to lend because of a lack of confidence but because they correctly understand that prospective borrowers ? already buried in credit card and college debt, dismal job prospects, and collapsing home values ? will in fact be unlikely to repay their loans.

But the thinking behind austerity is not without logic, as the government understands that by reducing business costs it can manufacture the profit that the system is otherwise struggling to create. And a chief cost that austerity aims to reduce is that of labor, as cutting what is left of the welfare state will encourage an even more desperate labor force that will, out of the necessity of survival, do whatever it takes for the opportunity to work for whatever is being offered. While Bernie Sanders is correct that the pending attacks on Social Security and other "entitlements" make no sense insofar as the debt is concerned, austerity makes total sense when it is understood as an attack on labor. Or, put differently, Obama and company think that we’re too rich.

Stiglitz dislikes this plan and instead advises that labor be effectively strengthened. It is important to note, however, that Stiglitz’s concern is that labor and consumers need to be stronger, not for their own sake, but in order to ensure "robust growth." However, Stiglitz is little concerned with the fact that capitalism’s need for perpetual growth is what got us into the current predicament in the first place.

None of this means, however, that capitalism is not "working." The rich are richer than ever, which is why the ruling class and their supporters are in love with that system. But through doing what it is supposed to, capitalism is ruining the world, as "extreme weather" from Texas to Sudan is demonstrating on a daily basis. While Stiglitz may imagine that he is saving the babe from the bathwater, he is in fact saving a monster that we would be far better without.

Joshua Sperber lives in Brooklyn and can be reached at jsperber4@yahoo.com