Understanding Economic Suicide

by Robin Hahnel

In my January column I explained that by stonewalling financial regulatory reform and imposing draconian fiscal austerity in the midst of the worst economic recession in eighty years ruling elites in Europe, the US, and Canada have us on track for what amounts to economic suicide, putting the North Atlantic region fast on the road to becoming formerly advanced economies. How can this have happened? Why would our ruling elites engage in such counterproductive policies?

Collapse of the Political Center Left

Thatcher and Reagan launched the neoliberal counter revolution against regulated, mildly egalitarian capitalism in the early 1980s. But not until the political center-left had been turned into a willing center-right did the economic policies of the traditional political parties become barely indistinguishable.

In the US in the 1990s it was the “liberal” Democrat Bill Clinton who “ended welfare as we know it,” pushed Congress to pass NAFTA and bring China into the WTO, and ended any pretence of regulating the financial industry when he signed legislation repealing the Glass-Steagall Act separating high risk investment banking from federally insured commercial banking. Today it is the “liberal” Democrat Barak Obama who pivoted from a woefully inadequate fiscal stimulus in 2009 to offer up social security and Medicare for deficit reduction in 2011. It is Barak Obama who aided and abetted Wall Street’s successful efforts to take the teeth out of the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act of 2010 before he signed it. And it is Barak Obama who scuttled international negotiations to avert climate change in Copenhagen and opportunistically absented himself from the debate as Congress failed to pass any legislation whatsoever to address climate change.

The situation is no different in Europe. In Greece it was the Social Democratic government of George Papandreou who imposed fiscal austerity measure after fiscal austerity measure before he was finally forced to resign in November 2011. In Spain it was the Socialist government of Jose Luis Zapatero who presided over one fiscal austerity package after another when the economic crisis broke in 2008 until his party was overwhelmingly voted out of office in December 2011.

It is hardly surprising that Tory Prime Minister David Cameron in the UK and Conservative Prime Minister Stephen Harper in Canada have embraced “blame the victim” fiscal austerity as the policy response long favored by conservative politicians. What has changed over the past decades is the extent to which only rhetoric, but not policies, change when center-left governments replace center-right governments.  Now, even when we vote overwhelmingly for “change you can believe in,” what we get instead are the same policies enriching the 1% at the expense of the 99% -- during good times as well as bad. The bottom line is poor and middle class people no longer have a major political party who even attempts to act in their interest anywhere in the North Atlantic region. Center-left political parties now behave as center-right parties used to behave, no matter what kind of populist rhetoric they resort to during election season.

Multinational Corporations No Longer Care

But if I am correct that failure to enact meaningful financial reform and launch a massive fiscal stimulus will doom the formerly advanced economies in the North Atlantic to stagnation and decline relative to other regions, why are our major corporations fouling their own nest? Part of the answer is blind free market ideology. Part of the answer is an economics profession that has studiously unlearned lessons taught by the greatest economist of the twentieth century, John Maynard Keynes. And part of the answer is insatiable greed run amuck. But beyond all these contributing factors lies a more fundamental answer to the conundrum: The nest they are fouling is still our nest, but no longer theirs.

Thanks to three decades of corporate sponsored globalization – supported by both center right and center left parties -- giant corporations are now free to (1) locate production wherever wages, labor standards, environmental standards, and corporate taxes are lowest, (2) sell products produced elsewhere in the high income markets of the North Atlantic region, (3) collect royalties on “intellectual properties” from every corner of the globe, (4) leverage their global lending business through the roof with a guaranteed taxpayer bailout in their back pocket whenever a financial crisis threatens, and last, but not least, (5) rely on an overwhelming military force paid for by the American taxpayer to squash any who dare to threaten to take any of these “freedoms” away from them. So what if the North Atlantic region declines in relative economic power? So what if the middle classes in Europe and North America shrink to the size of middle classes in the rest of the world? So what if the dream that one’s children will have better economic lives dies for the 99%?

The future for the 1% and their children looks very bright indeed. They pay less in taxes than ever before. Because their fortunes no longer depend on one region alone, their income and wealth continue to rise spectacularly even while the North American region stagnates. The educational and healthcare systems that are falling apart are not services they and their children use. The jobs that are no longer there for many in the 99% are of no concern to those whose only “work” is to manage their own assets. The 1% now enjoys the loyal political services not only of right wing and center-right political parties, but of formerly center-left parties as well. With military drafts a distant memory, they need not fear that any hostility that proves “necessary” might inadvertently claim the life of one of their own children. In short, they are not fouling their own nest at all. Their nest never looked better.

Of course sometimes privileged elites discover too late that by over reaching they drove those whose interests they trample to revolt. In which case, with hindsight, we might say some day that they fouled their own nest. But short of losing power, only if global warming and climate change proves to be the rising tide that engulfs all boats does the present behavior of our ruling elites risk fouling their own nest along with ours. 

Robin Hahnel is Professor of Economics at Portland State University. His most recent book is Economic Justice and Democracy and he is co-author with Michael Albert of The Political Economy of Participatory Economics. This column originally appeared in Portland's 'Street Roots' newspaper and exclusively available online at NLP.

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First published: 27 February, 2012

Category: Economy

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3 Comments on "Understanding Economic Suicide"

By John-Albert Eadie, on 28 February 2012 - 00:54 |

Clear.  But what the hell does one do?  We can all support Occupy, but it looks like you’re saying we’re doomed.  Well.  Doomed to some revolution of the tepid and stupid many years ahead of us.  Very unlikely.  Or in about the same length of time, incineration, much more likely.  What to do? 

What I say is, Europe is where it will start to happen - people finally getting what green consciousness is about.  Survival.  Then Asia will pitch in.  Even the rich will eventually shut up.  We cannot afford consumption economics.  We are in an accelerating race against nature.  In the meantime, the 99% have every right to howl.  We know in our hearts it’s all unsupportable and wrong.

By Robin Hahnel, on 29 February 2012 - 21:40 |

I do paint a gloomy picture of what we are in store for, although that was not my purpose.  My intent in this article was to try to explain something that baffles people who do understand how counterproductive present policies are. Namely, why would ruling elites in the North Atlantic region work so hard to destroy our advanced economies? My answer was that the center left part of the political spectrum, which has been ceding ground steadily for over forty years, has now completely abandoned its traditional constituency to embrace the policies of center right parties from 40 years ago. And that “our” multinational companies no longer need us… except as indebted consumers cashing in our assets.

But while I am pessimistic about how little our major political parties will do to solve the economic crisis in the near future, I am now more optimistic that a popular response to elite mis-rule can grow in size and depth, not only in Europe, but in the US and Canada as well. Now that it has become plain that our rulers do not plan to do anything about unemployment, climate change, or financial reform, I believe old progressive movements that had largely run out of steam will be joined and transformed by new popular forces determined to insist on real answers to real problems. If progressives and leftists can learn from our own past mistakes and make appropriate changes in our analyses, strategies, and tactics—and for me that is the big “if”!—I think traditional parties whose support is shrinking fast can be swept aside to make way for new political formations perhaps faster than most people imagine.

By the Gaul, on 01 March 2012 - 18:55 |

Unfortunately, while the progressives and leftists of 40 years ago had a reasonable opposition, that condition does not exist today.  Elites have ongoing incentive to maintain the political status quo.  Irrespective of the reforms that progressives may be able to accomplish -  and together with you, I think that is unlikely -  demonization of center-left policies will insure the slow, steady decline of North Atlantic economies.  Any potential threat to the dominance by and for the 1% will be/has been met by campaigns of inuendo and outright falsehood.

If some cataclysm does manage to place an obstacle in the elites’ path, a shiny new gee-gaw will distract the 99%.  Push out some sub-standard product, place an “i” in front of the name, and you have a formula for pacification.  True change is not going to come until the last helicopter is shoved off the roof a la Saigon [Ho Chi Minh City].

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