In all honesty, it scares me to think that we adhere to a system that not only predicts crisis, but actually causes them (as you have mentioned so soundly)

I do not believe capitalism to be the actual problem, but rather that the problem is within an extremist approach of capitalism. In that approach, the visible hand of Keynes cannot “shake” that of Friedman and Smith’s invisible one.

Anyways, outstanding writing, sir.

Looking forward to more (English) economic analysis from you in the next NUKS edition… perhaps a “one year later” analysis.

- Hashim

Thanks a lot for the engaging comment, and pleae let me try to advance the discussion.

I think that what you said in your second sentence is precisely the issue that has caused the problem, i.e. wages not raising with prices, and that is a view from a Marxist perspective. It is a fact from data that real wages (wages after adjusting to inflation) have stagnated since the seventies in the US. I think a reason why such a fact does not circulate widely among main stream economic analysis, in media and in academia, is that the dominant theory of economics in the US in the past couple of decades has been the neoclassical (the historical and techinical name among historians of economics for the free-market/private-interprise based economics found originally in Smith and Ricardo) and in this theory wages and labor are not the most essential factors for explaining macroeconomic phenomena. Indeed, for neoclassical economists the macro level of analysis all together is not exactly the best way to explain economic behaviour and activity, hence the emphasis on microeconomics instead, which I’m sure you and any ecnomics student in the US must have noticed, especially in grad school. I say that to show that one need not think that there is a conspiracy or an organized effort to conceal “the truth”, but it’s simply a failure of a certain theory and framework that many have been captured by to take into proper consideration important factors and explain economic crises.

I apologize if this is not directly related to your comment, but I think it’s worth asking the question: Why in the first place do wages stagnate? How could that possibly happen given your notes above? Well, all seems to rest on one classical assumption, namely that the market is capable of always reaching an equalibruim between wages and prices on its own, which obviously comes from the belief that market actors (basically firms, or capitalists for the Marxist) are rational actors in that area. The only problem is that firms/capitalists don’t really care about striking any equilibrium whatsoever (when was the last time we heard a CEO talk about equilibriums?). They care about maximizing profit, and perhaps here lies the distintion between the work of economists and finance people and accountants, theorizing about principles vs. technicalities within a given purpose, or at least that’s how I understand it to be. I digress, but the point is that firms/capitalists wont raise wages unless they have to. So, if there is some way of not having to raise wages, through technology or outsourcing or breaking of unions, then all the better becuase profits will even grow larger. Here one might note the interesting fact that computers and outsourcing were first introduced on a serious level in bussiness during the seventies and eighties, while union power was at the same time vigoursly diminished under the attacks of President Reagan’s administration in this country and Mrs. Thatcher’s cabinet in the UK.

I don’t want to go any further in expaling more detalis, so I hope the picture is a bit clearer now. The link to Prof. Wolff’s lecture does a better job of explaining these points, and he is a self proclaimed Marxist economist. And just to keep in mind, this is a Marxist analysis and not necessarily the best or only alternative, though it does seem very compelling. I really appolgize if this is too lengthy and not exactly to your point.

We say we want prices to be low, but they are at decade lows right now…is tis really our first choice? I think we preer the times when prices are high. That is when we have jobs we can take out loans for school, there is more money to tax, equating to more government programs, etc. Seems to me that everyone wins . Of course we could also get carried way…. 

Thanks for your comment

The purpose of the article was not really to propose an alternative economic system; rather a more modest aim of suggesting that the debate over the economic crisis be broadened beyond indeological boarders to include more serious discussions about the validity of the basic assumptions underlying the functions of the existent economy

Nonetheless, there are actually a number of alternatives to the current economic system that stem from other approaches such as the Keynesian and the socialist. What these two options offer are different assumptions to economics, namely in the case of Keynesianism that government intervention can actually be a good thing if not necessary, and with socialism that public ownership is beneficial and more rewarding than private enterprise

These are of course only two of the better known altrenative economic theories, but others surely exist and may well be equally applicable. But the reason I chose the ones I did is that they seem to be the best in striking at the pilars of the dominant neoliberal thought, which before the crisis arguably became more of dogmas of economics

In case you were interested, here is a valuable analysis of the crisis from a socialist perspective by Prof. Rick wolff of the Economics Dept. at UMass-Amherst

http://www.vimeo.com/1962208