Capitalism In Crisis – Module 27 : Who Caused the Great Recession?

Capitalism In Crisis – Module 27 : Who Caused the Great Recession?


This episode begins with Adam Smith placing
a call to fellow zombie economist Jeremy Bentham…now residing
in Truthiness City. Bentham…wary of liberals…had accepted
part-time work at the university there…creating 18th Century
rebuttals to liberal dogmas about what’s happenin’ now. But…with demand waning for his own dogma…Bentham
more recently downsized to a mundane job…complete
with billboard ads… of him in wide-brimmed straw hat…hawking
Jeremy’s Zombie-Style Used Cars. Jeremy…says Adam Smith…by phone from the
Great Salty City…we’re preparing…momentarily…for
Professor Robinson’s presentation…here…at the University of
Great Saltiness. You
may recall…she last spoke at Saltiness almost four decades
ago. Please come. All the gang will be here…for a big zombie
economic blowout…even Grandpa will be attending. Can you
make it…Adam asks? Joan needs an angry critic in the
audience. In that role…you always do a “killer”job. No way…Bentham snarls. Besides…Joan would bad-mouth my
pet topic…how laissez-faire sprang from the Enlightenment. I’m not coming all the way to Saltiness…just
for Professor Robinson to bash my ideas! Click. Sure enough…at the appointed time…Robinson
begins…as Bentham predicted…bad-mouthing some economic
aspects of the Enlightenment. First…she trashes what Adam Smith once
thought he learned from physical scientist Isaac
Newton…about economic orderliness. While Robinson
speaks…Smith listens intently…even though pretending to
sleep. Grandpa…sitting nearby…wonders if Adam
is trying to avoid embarrassment…given his over-dependence…two
centuries earlier…on an orderliness world view…now fully out
of sync with reality. Professor Robinson continues. Orderliness…was used by
Enlightenment economists…she muses…to shore up what
evolved into Twenty-first Century right-wing ideological
beliefs about equilibrium. The real economy…right wing
adherents believe…will always follow their fantasy belief of
perfection…says Joan…but only if government is sidelined. It
is government…then…that throws a wrench into the
works…free-marketers claim…with taxes, regulations, and
other policies they consider as meddling. However…right-wingers fail to account for
various hoarding schemes that pop up along the way…she says. When this
happens…unfortunately…it triggers leakages out of the real
economy…diminishing its potential. Examples? Well…during the Great Depression…gold
was hoarded…stuffed under the mattress…so
to speak. Doing so
slowed the outflow of household wealth during the initial
panic…but also created leakages…hemorrhages out of the
purchasing power stream…precipitating ever-larger drops in
aggregate income and employment. Say’s Law…so called…is no law at all…but
merely the restatement of the laissez-faire belief that
unregulated markets create near-perfect adjustments. When J.M. Keynes
broadly rejected this belief in the 1930’s…indeed…he was
rejecting the view…there should be no economic stabilization
role for government…no economic policy lever to control
bubble economies. Their belief…instead…is that when
government is sidelined from the get go…dysfunctional bubbles won’t develop in the first place…therefore…no
need to clean up messes for which only government
is responsible. More recently…Robinson observes…a second
glitch in doctrinaire capitalism is driving dysfunction…in
our contemporary economy trademarked by high tech
and international trade. She calls glitch number two…the profit
lacuna. It’s meaning? Well…two centuries ago…says Joan…the
thought system they created…the one still in use today…failed
to make a distinction that has become crucial. Indeed…there
is no specific theory of profit…in our inherited capitalist
intellectual system. No carefully crafted theory of profit…in
a system that depends on a profit explanation to justify self-
interested action as the prescribed way to attain the common
good. Specifically…capitalism’s underlying doctrine
fails to distinguish between what should be the extra
reward to one more dollar of productive investment by capitalists…compared
with one more dollar of nonproductive asset placement by
pseudo-capitalists. For instance…what ought to be the extra
reward to someone like Tesla’s Elon Musk…compared with the
presumed lower compensation to many financiers and other
wealth-hoarders like alleged pseudo-capitalist Donald
Trump…whose personal business empire is about economically
nonproductive casinos, golf courses…luxury hotels…endless
finance…and deals…deals…deals? In sum…Professor Robinson concludes…there
is an economic swamp…but the real one looks much different
from the contrived one…the so-called bogeyman pursued
relentlessly by the Trumpsters. The real economic swamp is one of wealth-
hoarding…of fraud…of rigging and gaming schemes…and the
like. So…asks Grandpa…from the back of the room. Who caused
the Great Recession? Which of the two ideologies should be
held accountable? OK…here goes…says Joan. Right-wingers believe it was caused
by too much government. Centrists and left-wingers…on the
other hand…believe it was caused by wealth-aspiring right-
wing ideologues who…in pursuit of the economic gas
pedal…threw out the brake pedal of prudence…instead. Read lots of perspectives on causes…she
admonishes. I’ll
conclude…says Joan…with a particularly biting one from the
New York Times…from 2008. Phil Gramm was a U.S. Senator from Texas. According to the
Times…Gramm became the most effective proponent of
deregulation in a generation. As Chair of the Senate banking
committee…he pushed laws and promoted policies that he says
unshackled businesses from needless restraints…but [that]
his critics charge significantly contributed to the financial
crisis….He led the effort to block measures curtailing
deceptive or predatory lending….He advanced legislation that
fractured oversight of Wall Street while knocking down
Depression-era barriers that restricted the rise and reach of
financial conglomerates. And he pushed through a provision
that ensured virtually no regulation of the complex financial
instruments known as derivatives….that would encourage risky
investment practices…to spread…around the world.

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