That, Which We Do Not Speak Of!
That, Which We Do Not Speak Of!
Marzouq A. Alnusf
University of Colorado at Boulder
Boulder, Colorado
It has been said that the economic times that we live in today are historical. The unfolding of events, of which most are bad, constantly carries with it the emblem of mystery. It seems that nobody really knows what is going on. Economists’ wonder: Was it actually the housing market or was it the banking system? Why did the banks get into the bad-loans business in the first? How did a second market for loans develop anyway? Political folk, on the other had, prefer to focus on the government: how could it fail to realize what was to come? Did the regulations fail, and hence need to be changed, or was it more of a managerial/administrative error? Even ethicists pitch in with their suggestions from the problematic aspects of greed.
But what most people appear to have overlooked (ironic, since the problem was caused in the first place by “overlooking”!) is the one simple question that ought to have come to mind at first encounter: if the machine fails, then it is probably because of its failed design. Meaning, if the economy is in such grave calamity, one that is described as fatal if left to its own, then perhaps the problem lies within the economic system itself.
Now let us see why the questioning of the legitimacy of the very economic system, i.e. capitalism in its latest formation, is the very natural strategy that one is to follow when thinking of the current economic predicament. It is an historical fact that capitalist economies have had crises of this sort, and many other sorts, since the clearer conception of the system it in the 18th century. Indeed, economic catastrophes of the scale that the world is experiencing today have often before visited us, most memorable of which is the Great Depression. Other minor economic misfortunes of the second half of the 20th century include the western economic stagflation of the 70s, the 1997 currency fall in Asian markets and the collapse of the Argentinean economy in 2001. These are far from controversial facts, for anyone who is interested in economics and follows events of the past half century will concur. Before departing from that track, it is worth noting that the last case of Argentina, and in actuality the rest of Latin America, provides a field of stark evidence on the way that the scheme of private enterprise and unregulated markets functions, or rather fails to precisely do that.
Another set of compelling facts in support of considering the claim that it is the system’s inherent problems that are responsible for the grave state of economy is the interesting and obvious, yet somehow obscure to many, fact that a number of prominent economic theorists have long before anticipated the disaster.
The first would have to be the German philosopher Karl Marx (1818-1883), who has made it his purpose in life to try and understand the terms of existence and living of what is known as “capitalism,” and to in that endeavor he has succeeded more than anyone else, as even many of his adherents would agree. Marx specified different contradictions in capitalism that give rise to different types of economic problems, most famous of which is the one from accumulation of capital, or excess thereof, phenomena, which is argued to be responsible for the “natural” cycles of recession and boom.(*)
Another prominent figure who is well known for precisely his critique of unregulated markets is the English economist John Maynard Keynes (1883-1946). Keynes on his part viewed state intervention in the market as the visible hand that joined Adam Smith’s invisible one to ensure the stability and continuation of the economy. In specific, his advocacy was for fiscal intervention through the government as a stabilizing force that steers the economy in its ups and downs (FDR’s New Deal is usually considered the most notable instance of Keynesian thought in action).
By now it should be clear that there are at least two reasons, besides one’s basic intuition, for considering the possibility that the significant source of the economic problem lies within the system itself. It is not only that crises have been occurring throughout the life of the market, but that some people actually managed to theoretically describe and predict those crises long before they were even fully conceived in reality. What is required is some serious thought into our miserable global condition in way that is liberated from the ideological constraints that might have been the reason for us being here in the first place. A hopeful note is that depending on how matters turn out, any of the upcoming moments could possibly bare the seeds of a future that is brighter in its prospects than what we have had hitherto.
(*)In summary, the problem results form the capitalist’s inclination to make profit by increasing prices, and lowering wages. Yet, in such a system the workers themselves are the consumers that the capitalist targets to buy the products. So, the dilemma arises when the income of workers is driven so low that they can no more afford to buy from the capitalist, thus what is called the problem of over production, which then gives way to recession. Such basic logic may be handy in understanding the occurrence of the Great Depression, the current crises and the reason why government intervention becomes necessary in these cases (to create jobs for workers so that they may earn enough money to engage in the market again). Of course it is apparent that the scheme of capital accumulation, which if not leashed eventually leads to the problem over production, can also be used to explain several other economic phenomena, for example to make sense of the apparent need and rise of the credit market in consumer, and then loan, industries.
Tags: capitalism, economic system, keynes, kuwait, marx, nebras, NUKS, socialism, that which we do not speak of, we are all socialists
What an interesting article marzoog!! and some great revolutionary ideas! but i have a question! what is the economic system that you suggest then?
Nice perspective,
Since decades, we tried implementing economic/social systems that would have the least or the minimum failure range, i.e capitalism, socialism and such. All of those ideas revolutionary rendered or claimed useless by critics after one single failure. Combination of approaches have also been used, yet, it yields the same result. So the golden question is, are we using those systems according to the guidelines of the people who invented it? and if no, is that why it fails? or do we have to fail few times to learn from our mistakes?
Rafeeq
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
Not to poke a whole in your story, bit when production, and prices increase- economic growth – then so do wages. If wages did not increase parallel to the increase in prices, no would afford the products/sevices produced. As a general rule, when one raises (price/wages) so does the other… that is inflation. If you want production and revenues to decrease, so do wages and employement.
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….
Christian
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.
Pretty thought-invoking post – raises some interesting points for debate. I just stumbled upon your blog this morning and wanted to say that I have really liked browsing some of the posts. Anyways, I’m subscribed to your feed and I hope to read more very soon!
Marzouq,
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