(Un)Intended Consequences

We all know about the phrase, unintended consequences, yes? Give a hand up to a struggling capitalist, and he lays off half of his employees in order to maximize profit. What, you didn't make him promise in writing that he would use the hand up to hire more employees and not just pocket the money? Oh, you believed him when he *said* that's what he'd do with the money. Silly you.

These last couple of weeks have been rather giddy for some parts of the stock market. The recession is over, some say. (Reminds me of "Top Gear": "Some say his testicles are case hardened ball bearings. All we know is, he's called The Stig!" OK, I made part of that up.) Recalling "The Giant Pool of Money", there was all those trillions pulled out of stocks, just looking for someplace to earn lots of capital gains. According to today's NYT, the 30%-ish rise in the Dow 30 since the (may be) bottom about a month ago brings it to its historical average with respect to earnings. In other words, if you missed the rise, your boat won't get floated any time soon.

So, what are all those capitalists saying now that they have their hand ups? Mostly, that "we" can't afford to take care of the tribe. The archetype is seen in the GM/Chrysler rescues. The evil lies in the retirees and union workers, who have bankrupted the companies. The constant refrain is that "we" can't afford to pay their pensions and health insurance.

This is particularly pernicious with regard to the retirees. There hundreds of thousands of them according to a recent article. Nearly a million. So what happens to the "recovery" if these million folks lose most, if not all, of their income? Can you say Mumbai?

The perpetual refrain from the wingnut capitalists is that "we" can't afford to pay middle class wages, anymore. What they won't admit, because making most everybody else poorer makes them richer, is that soon enough the society falls apart. I suppose they've decided that they'll hightail it to Lichtenstein when the rioting starts.

But, the destruction of the blue collar (and increasingly, white collar) middle class isn't a case of unintended consequence. It's the whole point; very much intended. Remember the wingnuts rallying cry: "starve the beast", when Reagan sent the deficit soaring? Didn't work out, of course. Clinton, Bill fixed things up rather nicely by taxing the rich, which caused the economy to grow rather well. That last bit is a fact the wingnuts don't like to roam around loose.

There is an unintended consequence of killing the middle class, which is easily observed in India and China today: since neither country is a self-sufficient economy, both depend on the US, and to a lesser extent Europe, to absorb their output. India, in particular, needs the US multi-nationals to absorb its excess labour. That is a tale for another post. With regard to output, the destruction of the American middle class will shortly cause the collapse not only of American capital (without consumers to buy widgets, capital is worthless), but Chinese and Indian as well.

No matter what the wingnuts say, it really is a zero-sum game without real wealth creation. Wealth creation doesn't happen in the stock or real estate markets, increases there are just sector specific inflation. Or bubbles, if you will. Wealth creation happens when raw materials are extracted, manipulated into shape, and sold for more than the value of the materials, labour, and capital used to create the widget. That's why Apple is profitable; it turns raw materials into iPods and iPhones. Not my cup of chai, those, but very much so to many. The wealth created is in that transformation process. All other value increases, financial sector shenanigans being a prime transgressor, are just as ephemeral as cotton candy. And just as empty calories as your Mama used to pester you about.