From "Anatomy of a Meltdown: Ben Bernanke and the Financial Crisis," by John Cassidy, The New Yorker (December 1, 2008) p. 54:
As chairman of the Council of Economic Advisers, Bernanke was expected to act as public spokesman on economic matters. In August, 2005, after briefing President Bush at his ranch in Crawford, Texas, he met with the White House press corps. "Did the housing bubble come up at your meeting?" a reporter asked. "And how concerned are you about it.?"
Bernanke affirmed that it had and said, "I think it is important to point out that house prices are being supported in very large part by very strong fundamentals....We have lots of jobs, employment, high incomes, very low mortgage rates, growing population, and shortages of land and housing in many areas. And those supply-and-demand factors are a big reason why house prices have risen as much as they have."
The Bernanke quotation exemplifies inside-the-box thinking. The box is the free-market economic paradigm. What the paradigm (macroeconomics, microeconomics), so summarized by Bernanke, does not take into consideration are exogenous circumstances and events. In Marxist language, it does not take into consideration the material conditions that move and shape the box of theory, but for which the theory does not have references. The lack of such references is a weakness of the theoretical paradigm, because exogenous material conditions are always present and always historically determinative. That anyway, is how, I think, a Marxist might put the matter. (I am not endorsing Marxism here; but Marxism's rejection of the notion of "free market economics" does give a perspective on these issues.)
The material conditions that envelop and shape the free market economy include, for instance, the values of the citizenry, their social arrangements, and government's commitment to the institutions within which the free market operates, such as the right to private property and private capital (I outlined the fundamentals, several months ago, here.)
I have argued in several articles that the material conditions of the free market, so to speak, are the real fundamentals of the economy and they are not strong. (To peruse the articles, click the index, "Financial Crisis".) They are weakened by several powerful social forces that have been changing over the past sixty years. One condition is the decline of manufacturing--of making physical things as the main basis of the economy. Another condition is the changing status and fortunes of the manufacturing laborer. The nation has not revised its concept of the manufacturing laborer to modernize it for a new era. It has, rather, simply rejected the concept of manufacturing labor as obsolete for our society. One symptom of this rejection is the politically popular notion that the blue collar laborer's future can only be improved by college education; that is, men and women who are laborers or might want to be laborers are recommended to get an academic education that prepares them for non-labor jobs. In other words, the standard prescription for blue collar labor is that it has no future and people shouldn't want to be laborers. As a result of this presumption, we have, really, no concept of how manufacturing labor might be transformed and remain an important contributor to the nation's wealth.
The dismissal of an economic future for the manufacturing laborer is related to the housing crisis. Laborers with an economic future can look forward to increasing their wages over their working career as they get experience, obtain advanced vocational training, and acquire capital to invest in their own development. Laborers with such a future would be able to take mortgages and rationally expect to be able to meet the long term requirements for payment on the mortgage, even the step-up payments of adjustable interest rate loans.
The issue that has not, to my awareness, been taken into consideration is that the mortgage and financial crises are symptoms of the nations' failure to envision a manufacturing future for itself and a future for our manufacturing laborer. We think that we have found another way to generate wealth, that is, a service economy, and don't need manufacturing any longer. Maybe we are wrong on all these counts. Maybe the fundamentals outside the economic paradigm are too weak to support our new economy. Maybe the mortgage and financial meltdowns are where the system has failed for the weakness of its real, historical fundamentals.
Update. December 14, 2008. See my discussion on the decline of American economic productivity.
Recent Comments