The ABC’s of the Economic Crisis: What Working People Need to Know – A Quick Look

  • We are currently experiencing the most severe economic crisis since the Great Depression. Although the Fed has pushed down interest rates and the government has spent hundreds of billions of dollars to encourage banks to lend to consumers and businesses, economic activity is still declining and is likely to stabilize at a low level.
  • Our system of production is capitalism, which involves a relatively small number of people (capitalists) who control the organization of the means of production, where the main goal is to produce enough output in order to make as much money as possible.
  • By nature, capitalist economies are prone to crises as it creates long-term and difficult barriers for achieving profits and capital growth.
  • In order for a surplus of profits to increase accumulation, it needs to be reinvested. If it is not, accumulation will slow down and the growth of the economy will decrease until new investments are discovered to put the surplus of profits to use.
  • If there is no social movement to force the government to absorb the excess of profits and create socially useful public expenditures (ex: create new affordable housing) then the government will maintain the current system and its relationships that will ultimately perpetuate stagnation.
  • One of the most prominent factors of protracted slow growth is the decline in capacity utilization in manufacturing. This has been declining since the 1970s with no signs of improvement as the automobile industry has lost its ability to contribute to the accumulation process. (Capitalist nations are saturated with cars/trucks and poor nations do not have the mass market to engulf the excess capacity)
  • Capitalists ignited an insistent campaign to maintain their profit margins once it began to wane in the 1970s and 1980s. Capitalists advocated for the reduction in labor costs, the dismantlement of New Deal programs, and to allow owners of the economy to have greater control over their ability to produce profits.
  • Over the last few decades, capitalists have been trying any maneuver to increase their profits which has led to the massive expansion of the financial sector. Making money on intangible items has now become the biggest sector of the economy since the 1980s.
  • Financial companies promoted deregulation of its sector and were a frequent culprit of fraud and/or lenient business practices.
  • The unprecedented debt acquired by the United States is directly related to the leverage of financial institutions.
  • The adverse effects of these financial practices began to surface in the summer of 2007 as two hedge funds managed by Bear Stearns failed. The financial system, pension funds and other large institutions began to recognize the futility of subprime mortgages as more and more were unable to meet their promised returns. By fall of 2008, economists predicted that more money was owed versus the value of approximately 12 million homes as many people were unable to make their mortgage payments. Foreclosures ensued soon after.
  • It is important to consider the role of financial executives in government economic policy as most of them have very close ties with elected officials. Many top executives have or do hold positions as government appointed officers and advisors. Therefore, there almost leaves no reason to believe that the government will focus their policies on mostly helping the working class.
  • The authors speculate that the government’s goal is not to necessarily reform the entire system, but to bring our economy back to a pre-crisis environment. With these tactics, the sustainability of the U.S. economy depends on the exploitation of workers compensated by increasing private consumption. In turn, this promotes a sales effort to produce high profits characterized by rapid invention and waste. Consequently, our society is bound to a system that guarantees inequality as we constantly try to catch up to the consumption of the wealthy. Moreover, this economic model will continue to produce adverse consequences for most of the population and is also ecologically unsustainable. (examples include lower life expectancies, higher rates of imprisonment, and soaring levels of insecurity)

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