Micro mirrors the macro

The U.S. Chamber of Commerce, following complaints from some quarters that U.S. businesses are more interested in greater and greater profits than in job creation, is calling for more decreased regulation (just how much less regulation do they need?) and continuation of the Bush tax cuts for the rich—which created a net of 2 million jobs in eight years, compared to 22 million during the Clinton years. But the Chamber just doesn’t “get it.” Reaganomics does not work; the rich do not “re-invest” into the economy all that extra money they made, nor do they drive a consumer-based economy. Only well-paid laborers with money to spend can run a consumer-based economy. I disagree, however, with those who say the “free trade” is the problem; given the lesser expendable cash available to workers, more expensive American-made products will only have a very modest positive result at best.

One way of seeing how our economy actually works is to view it through micro economics. A person may earn a certain modest wage, and if his or her needs are satisfied by, say, watching television, listening to records, reading books, going to a restaurant once a week, attending a movie once a month, and taking a vacation to Florida once a year, one can easily live within their means without too much trouble. But in a world where electronic gadgets, personal computers, the internet and cell phones opens up whole new vistas of desires, you might crave things that are a sign of “sophistication”—digitized toys that can turn that rat and roach infested closet you live in into a self-contained entertainment and learning center, The early Macintosh computers wetted your appetite (before you tired of their “secrecy” about upcoming products that didn’t allow you to make intelligent purchasing decisions on their already over-priced product). Then there was digital media “revolution”: CDs, Laser Disc (you can’t even find a machine to play those anymore, but they do make fascinating house ornaments) and DVDs. There are a lot of titles for the dedicated videophile, but you just don’t have the cash to buy them all with.

But once in college long ago, some bank sent you an application for a piece of plastic called a Visa card, an when it arrived you really didn’t know what to do with it (maybe even a little scared to use), but once you take the leap, you realize it’s like “free” money and you don’t even have to pay all of the balance at the end of the month. Who would spend almost a month’s pay on the first portable DVD player (don’t ask)? You might do it because you always have that “free” money as a fall-back plan. And then you apply for another, and another card. Unfortunately, your income has only risen marginally, in fact, it has not kept-up with inflation; but no matter, as long as you pay the minimums, you figure that eventually you’ll have everything you’ll ever want soon enough, and you won’t want anything else, and everything will come until control, in time. But the market doesn’t aid you in this endeavor. For example, it wasn’t that long ago that a PC with a 486 Intel processor and 8 MB of RAM at $2,000 was considered “top of the line.” Now you can’t even run the latest Windows without at least 2 GB of RAM. Yesterday, it was DVDs; today its Blu-Ray. Tomorrow it will be something else (like 3D-HD).

But then one day your job becomes an artifact of history, and the funds you were depending upon to plug-up the dike is swept out to sea. It’s only for a short time, but you’ve been living on the edge for quite some time now. You still have access to “free” money for awhile, which you may use to pay for essentials and the minimums with. But even this fantasy world must come to an end; the bubble bursts, and your financial situation collapses like the house of toothpicks it was destined to become once you began to use “free” money to buy things that either depreciated in value, or had no value to anyone but yourself.

Faced with economic calamity, you could just pay a bankruptcy attorney to make the problem go away, or observe that banks and whole countries default on everything all the time, so no one will notice if I do (right?). But you decide you want to do the “right” thing—if only out of “habit” and you don’t like change—so you contact a debt consolidation operator; after a period of haggling where you are forced to do all the fighting with the credit card companies (like threatening to default if they don’t stop with the late and over-limit charges), you are obliged to accept a payment plan that cancels your cards and forces you to make a lump sum payment per month that is larger than the original combined minimum payment. The effect of this is that you have to pay for everything you buy in cash, just like you used to do before you got yourself into this mess. But now that $500, which in the very beginning was wholly used to buy things that others were employed to make or provide services for, is now completely at the service of financial institutions, keeping them profitable while not doing a damned thing for economic activity.

That’s the way it is. People have to have money to buy things to keep the economy going. But instead of raising wages, businesses in league with banking institutions schemed to keep wages low and offer consumers “free” money with high interest rates to build a bubble economy and cover the bankers’ bottom line if things went south—but only for a time. Only so much debt can be accumulated before access to “free” money will eventually run out too—and what is to show for it? For financial gambling institutions, it didn’t even “buy” anything to begin with, except to fill the pockets of a few multi-millionaire and billionaire executives while it was still available (especially when you have friends in the Fed). It was the middle to low-income consumer who was given the burden of making the economy work, without legitimate means to do so.

So the micro mirrors the macro. Federal and state governments are running out of phony money to stay afloat, while off-shored corporations that don’t pay taxes are still enjoying huge profits, executives distribute among themselves billions of dollars, and don’t want to give any of that up by creating jobs or paying people a living wage. All they want is more, more, more, while they whine, whine, whine.