Wall Street bankers crashed our economy three years ago, and their “too big to fail banks” received trillions, courtesy of the Federal Reserve. Now they and their political allies are clamoring to cut social programs like Social Security, Medicaid and Medicare, extending austerity to millions of unemployed Americans. What the fuck is going on?
In 1992 Bill Clinton’s campaign staff believed that economic issues were the key to winning the Presidency. Their motto was “It’s the Economy Stupid.” It was insightful as a campaign issue during the ongoing recession and helped Clinton prevail.
In our present situation the economy is important, but it does not explain how the US came to have such a radical disparity of wealth, and a policy of bankers uber-alles.
If you listen to conventional wisdom, the wealth disparity in this country is caused by inequities in education and changes in technology. According to this view, the free market system rewards those who do well and punishes those who don’t. But look at any so called economic decision and you will see all kinds of political calculations.
Political economy, almost unheard of anymore, originated in the study of moral philosophy in the 18th century. Unlike economics with its study of mathematic models, and political science with its emphasis on polling and elections, political economy examines how various individuals and groups stand to benefit from the laws and regulations that are made and implemented. Economic and political power has been gained by the class whose interests are most consistently served by the exercise of state power. To use a latin phrase–cui bono?
As Atrios says, “It’s not loopy leftist conspiracy theory to see that there are entrenched economic interests wedded to the government money fire hose.”
Political economy has been largely discredited as Marxist because it dared to look at “unearned income” that was gained by the wealthy elite class through land “rents,” trusts, and monopolies. Todays mainstream economists reject this classical political economic theory of unearned income or “rent,” and claim that everyone earns and hence deserves whatever income and wealth they obtain regardless of how they got it. All rentier income appears to be payment for providing a valuable service to the economy. Another important tenet of political economy is that government should act to minimize these “rents” by taxing them in order to make an economy more efficient. “Classical political economy sought to create an economy free of “unearned income” and free of vested interests using special privileges for “rent extraction.”
The 30 year coordinated attack on government has turned this concept on its head. The railroad system, the interstate highway and the internet were all government programs that spurred innovation and entrepreneurship, and led to millions of middle class jobs. Now governments must cut taxes on the wealthy and property and sell off infrastructure to private entities. This has indirectly spurred deindustrialization by placing tollbooths on the economies key infrastructures, making it that much more expensive to do business in the US. These rent and tax policies are then taken for granted as exogenous, being political or institutional, and as such excluded from the sphere of economics. “We are dealing with a purposeful narrow mindedness in regard to how their policies favor the rich.”
Once you understand the concept of political economy, you see rent extraction everywhere. From oligopolistic telecoms providing 2nd world internet speeds, to banks with fees for every service, to health insurance found to be worthless after paying premiums for years. And the financial industry’s business model is basically to extract wealth from investors with a myriad of opaque products.
Our economy has evolved from one that made stuff and provided valuable services to one that basically rips you off if you don’t pay attention. And guess what? It’s not a bug, but a feature.
And the reason it’s a feature–the political economy stupid.